Punjab-Haryana High Court
M/S Century Metal Recycling Pvt. Ltd. & ... vs Union Of India And Others on 31 October, 2008
Bench: Adarsh Kumar Goel, L.N. Mittal
IN THE HIGH COURT OF PUNJAB AND HARYANA AT
CHANDIGARH.
C.W.P. No.14881 of 2008
Date of decision: 31.10.2008
M/s Century Metal Recycling Pvt. Ltd. & another.
-----Petitioners
Vs.
Union of India and others.
-----Respondents
CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOEL
HON'BLE MR JUSTICE L.N. MITTAL
Present:- Mr. Ashok Aggarwal, Sr. Advocate with
Mr. Akshay Bhan, Advocate
for the petitioners.
Mr. Ashwini Bansal, Standing Counsel
for respondent No.1/UOI.
Mr. Satish Aggarwal, Advocate with
Ms. Mala Sharma, Advocate
for respondent No.2.
-----
ORDER:
1. This petition seeks quashing of search and seizure conducted by respondent No.2 Commissioner of Central Excise and for a direction to refund a sum of Rs.1,,10,75,019/- deposited by the petitioners under the threat of arrest. Further prayer is for return of the records of the petitioners. Prayer has also been made for not taking any coercive action of arrest or detention against the petitioners and his employees.
C.W.P. No.14881 of 20082
2. Case of the petitioner-firm is that it manufactured Aluminum and Zinc Alloy Ingots falling under Chapter Heading Nos.76 and 79 of the Central Excise Tariff Act, 1985. The raw material is mainly imported. The custom duty paid is credited to the CENVAT account under the Cenvat Credit Rules, 2004 and credit is availed against liability to pay excise duty on the finished product. On 28.5.2008, search was conducted at the factory of the petitioner- firm which was followed by further search on 6.6.2008 and other dates.
3. The petitioners made request to provide copies of the documents which were seized or to allow them to make photocopies of the same. During search, the petitioners were informed that excess stock of raw material was found, for which the petitioners gave explanation. The petitioners sought provisional release of seized material against bond without bank guarantee, but the goods were not released.
4. The petitioners made a deposit of Rs.1,,10,75,019/- under duress. The respondent No.2 also seized dross, apart from raw material, which according to the petitioners was not excisable and on that account not required to be entered in the record.
5. In the reply filed by the respondents, case of the respondents is that search and seizure were conducted on account of evasion of duty which was inferred from the following:-
"(a) received fake bills without actually receiving the material from its sister concern dealer namely M/s Grand Metal Industries, Delhi & Faridabad, C.W.P. No.14881 of 2008 3
(b) the removal of CENVATable inputs without reversing the credit,
(c) unaccountable sale of Dross (a by-product of alluminium ingot manufacturing),
(d) unaccounted diversion of finished goods and unaccounted use and
(e) sale of other metals recovered from imported inputs."
6. It has further been stated that Shri Mayank Pareek admitted the facts that there was shortage of finished goods and that CENVAT credit has been taken wrongly. Further stand of the respondents vide letter dated 17.6.2008 (Annexure R-2) is that copies of most of the documents were already with the petitioners. The respondents advised the petitioners to furnish R-11 bond for value of seized goods with security of 25% of the face value by way of Fixed Deposit or bank guarantee. As regards the return of money, stand of the respondents is that the petitioners made the deposit voluntarily against the duty which may arise during the course of assessment.
7. We have heard learned counsel for the parties and perused the record.
8. Contention raised on behalf of the petitioners is that search was without any reason and the petitioners were forced to make the deposit even before the assessment and that continued detention of goods by offering to release them on arbitrary conditions was illegal. It is submitted that reasons were required to be C.W.P. No.14881 of 2008 4 recorded for search as well as for seizure and the said reasons were required to be furnished to the petitioners. Reference was made to provisions of Sections 105 and 110 of the Customs Act, 1962 which were applicable by virtue of notification issued under Section 12 of the Central Excise Act, 1944 and Section 165 of the Code of Criminal Procedure which was applicable by virtue of Section 18 of the said Act. It was submitted that condition for provisional release of goods by requiring Bond B-11 which was applicable only to release of finished goods and demand of Bank guarantee or cash security equal to 25% of value of goods was unreasonable.
9. On behalf of the respondents, it was submitted that the matter was being investigated and investigations will be completed within one month and that search and seizure was conducted for evasion of duty on account of wrongful availment of CENVAT, which could lead to confiscation under Rule 15 of the Cenvat Credit Rules, 2004. It has further been pointed out that the Dross which was held to be not excisable in the judgment of Hon'ble the Supreme Court in Commission of Central excise v. Indian Aluminium Co. Ltd. 2006(8) SCC 314 was made excisable by amendment to the Central Excise Tariff Act, 1985 w.e.f. 1.3.2005 by classifying the same under sub heading 26204010.
10. Further contention is that applicability of Section 165 of Code of Criminal Procedure was qualitatively different under the scheme of the Act, which has been noticed in the judgment of the Hon'ble Supreme Court in R.S. Seth v. R.N. Sen AIR 1967 SC 1298. C.W.P. No.14881 of 2008 5
11. The questions for consideration are whether the search and seizure was called for, whether the petitioners were entitled to refund of the amount deposited and whether the conditions for provisional release of seized goods are valid.
12. Since the matter is under investigation, which respondents have undertaken to conclude within one month, we do not consider it necessary to express any opinion at this stage on the validity or otherwise of search and seizure.
13. As far as the amount deposited by the petitioners is concerned, case of the petitioners is that the same was deposited under coercion. Case of the respondents was that the same was deposited voluntarily. Whatever be the position, unless there is assessment and demand, the amount deposited by the petitioners cannot be appropriated. No justification has been shown for retaining the amount deposited, except saying that since it was voluntarily deposited. In view of this admitted position, the petitioners are entitled to be returned the amount paid.
14. As regards release of goods, the object of seizure admittedly is to ascertain facts and to safeguard the interest of the revenue against any possible evasion of duty. Pending investigation, the goods cannot be detained for indefinite period nor any harsh or unreasonable condition can be imposed for release thereof. There can also be no presumption that the goods will be forfeited. Question of securing against the value of goods can arise only if a clear prima facie case for confiscation is made out. Mere hypothetical existence C.W.P. No.14881 of 2008 6 of power or provision for forfeiture cannot be a ground to require security to be furnished for the value of goods which normally will be very onerous condition.
15. Even though, we have not expressed any opinion on merits, we are required to go into question of reasonableness of conditions for provisional release in the background of facts on record. Allegation of the respondents from which inference of evasion of duty is sought to be drawn, relates to wrongful availment of Cenvatable inputs.
16. As regards omission to make entry of dross, the petitioner has pointed out that as per law laid down by the Hon'ble Supreme Court in Indian Alluminium (supra) 'dross' was not excisable item. According to the department, the same was excisable w.e.f 1.3.2005. The Hon'ble Supreme Court held that 'dross' was not result of manufacture. Prima facie, it cannot be held that case of the petitioner was not arguable or that prima facie the record in respect of 'dross' was not kept with a view to evade duty. Similarly, the other basis for inference of evasion of duty is that the petitioner has shown low value addition to the cost of raw material while valuing the final product. This inference may be a ground to investigate the matter but not a ground to confiscate the goods. Further, allegation that on stock verification, there was excess stock, could also not be clear ground for confiscation and could at best be a ground for cancelling the CENVAT credit. The value of the goods has been assessed to be less than Rs.5 crores but in the reply, it has been stated that there C.W.P. No.14881 of 2008 7 was estimated tax evasion of Rs.23 crores. The seizure took place almost three months earlier and no demand has so far been raised. In these circumstances, without making out a clear prima facie case, continued detention of goods or imposition of such conditions as make release of goods impossible, will be arbitrary. Even though, there may be jurisdiction to conduct search or investigation and make demand of duty, the same has to be done by following reasonable procedure. Detaining goods for a long period, in the circumstances, cannot be held to be part of fair procedure. Allegation of unaccounted diversion of finished goods has not been sought to be supported by any material. Panchnamas Annexures P.1, P.2, P.4, P.6 and P.7 do not contain any allegation of diversion of finished goods. Only allegation in the said Panchnamas relates to non entry of 'dross' in the record and there being excess stock of raw material. There is nothing to show that any loss will be suffered by the revenue if the goods are released against undertaking of the petitioner to pay duty which may be found due as a result of investigation. It has also not been shown that for release of raw material, conditions of Bond B-11 are applicable.
17. Accordingly, we partly allow this petition and direct the respondent No.2 to forthwith return the amount deposited by the petitioners and to release the goods on furnishing undertaking in terms identical to the terms in Form B-11 prescribed under Rule 206 of the Central Excise Rules without any bank guarantee or cash security.
C.W.P. No.14881 of 20088
16. The petitioners will also be allowed to take copies of all the records which they may seek, at their cost.
17. The petition is disposed of accordingly.
( ADARSH KUMAR GOEL )
JUDGE
October 31, 2008 ( L. N. MITTAL )
ashwani JUDGE