A 35-year tax fight ends not with a verdict, but a Rs 5 lakh penalty

The company spent 35 years fighting a law it said was unconstitutional. By the time the Supreme Court heard it, the judges had a different question: why are you still here?

Golden Tobacco Limited had been fighting the excise department since 1988 — a dispute over Rs 94 crores in alleged unpaid duty, built on the testimony of 75 witnesses. The company had lost at the tribunal. Lost at the High Court. Lost at the Supreme Court on a first appeal. Lost again on a second. By February 2023, when the case finally landed before a two-judge bench, the company had exhausted every legal avenue available. The only question left was constitutional: could the government use witness statements without letting the accused cross-examine them?

The judges had a simpler answer: you should have asked that question 30 years ago.

When the show-cause notices arrived

In March 1988, the Collector of Central Excise issued two show-cause notices to Golden Tobacco Limited. The physical documents, stamped and signed, demanded payment for alleged short payment of excise duty. The allegation: the company was manufacturing cigarettes that looked nearly identical to its regular brands, selling them at higher prices through a chain of super wholesale buyers, and pocketing the difference — a practice the department called "flow-back." The total demand: approximately Rs 94 crores.

The department built its case on statements from 75 witnesses. The company asked to cross-examine every one of them. The department allowed only 29. When those 29 witnesses took the stand, most denied any flow-back arrangement. But the department still relied on the remaining 46 statements — and used a specific provision of the Central Excise and Salt Act, 1944 to do it.

The law at the heart of the fight

That provision was Section 9-D of the Act — a rule that lets the excise department use statements recorded during investigation without cross-examination, in certain limited circumstances. The company argued this was unconstitutional — that it violated the fundamental right to a fair hearing. The department countered that the section had built-in safeguards: the officer had to form a reasoned opinion, the affected party had to be given an opportunity to respond, and any decision could be challenged in appeal.

The company filed writ petitions before the Delhi High Court in 1992, challenging both the denial of cross-examination and the constitutional validity of Section 9-D. That was the beginning of a legal marathon that would stretch across three decades.

Every door closes, one by one

The tribunal — the Customs, Excise and Gold (Control) Appellate Tribunal, or CEGAT — ruled against the company. The Supreme Court dismissed the first appeal in September 1997 because the company failed to make a pre-deposit, a mandatory payment before an appeal can be heard. The Delhi High Court dismissed the writ petitions in December 2006, refusing to interpret Section 9-D.

In April 2008, the Supreme Court gave the company one more chance: it sent the matter back to the Delhi High Court for fresh consideration of the constitutional challenge. The High Court heard the case again and, in August 2009, declared Section 9-D constitutionally valid — "intra vires" in legal language — while laying down specific conditions that must be met before the section can be used. Those conditions included: the officer must form a reasoned opinion based on material, the affected party must be given an opportunity to respond, and appellate judicial review must remain available.

The company appealed again. Meanwhile, the department's own appeals against related parties — J&K Cigarettes and Kanpur Cigarettes — were allowed by the Supreme Court in July 2008, and the tribunal confirmed the demands against them. The company's own appeals against those orders were dismissed in 2011 for non-deposit.

By the time the present appeals reached the Supreme Court in 2023, the company had lost every single substantive battle. The only thing left standing was the constitutional question about Section 9-D.

Why the judges said the question was 'academic'

Justice S. Ravindra Bhat and Justice Dipankar Datta sat on the bench in a courtroom that had fallen silent as the arguments wound down. They looked at the record and saw a problem the company's lawyers had apparently missed: all parallel proceedings — the tribunal appeals, the department's appeals, the related party cases — had attained finality against the company. No remedy by way of appeal or petition remained open. The adjudication orders confirming the Rs 94 crore demand were final.

In legal terms, there was no surviving "lis" — no live dispute that the court could resolve. The company was asking the Supreme Court to decide whether Section 9-D had been correctly applied, but the application had already happened, the orders had been confirmed, and the time to challenge them had passed. The question, the bench said, was "purely academic."

The court cited its own precedent in Andaman Timber Industries v. CCE (2016), where it had held that denying cross-examination could vitiate proceedings. But that case, the bench noted, was decided on its own facts — and the company here had already lost its chance to raise that argument in time.

The cost of a 35-year delay

The Supreme Court dismissed the appeals. It endorsed the Delhi High Court's view that Section 9-D was constitutionally valid, subject to the conditions the High Court had laid down: the officer must form a reasoned opinion, the affected party must get an opportunity, and appellate review must remain available. But the real sting came in the operative order.

The court wrote: "The civil appeals are dismissed. The views of the High Court insofar as it spurned the challenge to the constitutional validity of Section 9-D of the Excise Act are endorsed." It then imposed costs of Rs 5 lakh on the company for "protracting proceedings" — for continuing to litigate a case where no live dispute remained. The money was to be paid to any charitable organization helping children suffering from cancer, within one month, with proof of payment to be produced before the Registrar within two weeks. If the company defaulted, the amount would be recovered as arrears of land revenue.

THE PLAY: If you challenge a statutory provision as unconstitutional, do it early — before the substantive proceedings against you become final. A constitutional question cannot revive a dead case.

The company spent 35 years fighting a law it said was unconstitutional. The Supreme Court agreed the law was valid. But the company never got to test whether the law had been correctly applied to its own case — because by the time it asked that question, the answer no longer mattered.