Madhya Pradesh High Court
Asstt.Collector,Customs & Ex.,Bhilai vs M/S Nagpur Engg. Co. Ltd. & Anr on 5 March, 2009
THE HIGH COURT OF MADHYA PRADESH : JABALPUR
Cr. Appeal No.236/1994
The Assistant Collector,
Customs & Central Excise,
Bhilai (M.P.) ............ Appellant
vs.
(1) M/s Nagpur Engineering Co. Ltd.
106/LIA, Bhilai (M.P.)
(2) Sri Arvind Ayyar, son of Sri G.Shriniwasan Ayyar
aged 31 years, occupation Business,
R/o C/o Chief Executive,
Nagpur Engineering Co. Ltd.
106/LIA, Bhilai (M.P.)
............ Respondents
Shri O.P. Namdeo, Advocate for the appellant.
Shri Amitabh Gupta, Advocate for the respondents.
JUDGMENT
(5/3/2009) This is an appeal against acquittal of the respondents in respect of the offence punishable under Section 9(1)(d)(i) of the Central Excise and Salt Act, 1944 (now called as Central Excise Act, 1944 and hereinafter referred to as 'the Act'). The corresponding judgment-dated 14.07.1993 passed by First Additional Sessions Judge, Indore in Criminal Appeal No.112/91 is the subject matter of challenge. The appeal was directed against the conviction and the consequent sentences as passed on 19.09.1991 by Additional Chief Judicial Magistrate (Economic Offences), Indore in Case No.99/1988.
2. Respondent no.1 M/s Nagpur Engineering Co. Ltd. (for short 'R1') is a Company registered under the Companies Act, 1956 and the respondent no.2 Arvind Ayyar (for brevity 'R2') is its Chief Executive. At the relevant point of time, Bhilai Based :: 2 ::
Cr. Appeal No.236/1994Unit of the Company was engaged in manufacturing of Cast Iron Anti Creep Bearing Plates (CIACBP) in accordance with the specifications and design approved by RDSO (Research, Design and Specification Organization) of the Ministry of Railways, Government of India.
3. It was upon a complaint made by the Assistant Collector, Customs & Central Excise, Bhilai that cognizance of the offence punishable under Section 9 of the Act was taken against the respondents and co-accused namely B.L.Shaw, A.K.Jaiswal, M.K.Jaiswal and R.K.Jaiswal. The complaint contained the following allegations -
On 21.03.1987, during a surprise inspection of the Industrial Unit, Superintendent (Prev.) found that R1 was involved in manufacturing of CIACBP without obtaining or applying for a Central Excise Licence despite the fact that being a material exclusively used for fixing the rails, the product was appropriately classifiable under the Sub-Heading 7302.90 in Chapter 73 of the Central Excise Tariff. Further, the Company during the period from 28.02.1986 to 31.03.1987 had already removed 3,32,188 Nos. of the product worth Rs.1,41,69,007.50 even without discharging liability to pay the Central Excise Duty leviable @ 15% Adv. In this way, the accused were able to evade excise duty to the tune of Rs.13,41,931.62 even after allowing benefits of Notification No.175/86 CE (as amended) dated 01.03.1987 as the unit was a SSI Unit. Consequently, they were liable to be punished for contravention of Rules 9(1), 52 A, 53, 173 B, 173 C, 173 F, 173 G, 174 and 173 Q. On these facts only, the Central Excise Department initiated adjudication proceedings for the imposition of penalty. However, even after the :: 3 ::
Cr. Appeal No.236/1994adjudication order dated 29.07.199 the accused had failed to pay the excise duty together with penalty as imposed by the Collector under Rule 173 Q of the Rules.
4. At the trial, all the six accused including the respondents were charged with the offence punishable under Section 9(1)(d)(i) of the Act. They abjured the guilt and pleaded that the product viz. CIACBP, being covered by Sub-Heading 7307.10, was exempted from duty under Notification 208/83 dated 01.08.1983 (as amended). According to them, the complaint was premature in view of the fact that the appeal preferred under Section 35B of the Act against the adjudication order was pending before Customs, Excise and Gold Control Appellate Tribunal (for short 'the Tribunal').
5. To bring home the charge, the complainant examined Narayan Prasad Agrawal (PW3), the Superintendent, and Dharamveer Sharma (PW1) and Manindra Nath Verma (PW2) respectively Superintendent and Inspector as other members thereof. In defence, R2 examined himself as a witness.
6. Upon consideration of the entire evidence on record, the learned ACJM, for the reasons recorded in the Judgment-dated 19.09.1991 (supra), concluded that the respondents were guilty of the offences charged with. He, accordingly, convicted them and sentenced as under -
Respondent Sentenced to
R1 To pay a fine of Rs.25,000/-
R2 undergo R.I. for 6 months and to
pay a fine of Rs.2000/- and in
default to suffer S.I. for 1 month.
7. Being aggrieved, the respondents questioned legality and propriety of the convictions by filing the appeal before Court of :: 4 ::Cr. Appeal No.236/1994
Session. Before this appeal could be heard finally, the Tribunal disposed of their appeal against the adjudication order vide order dated 12.10.1992, reported as Nagpur Engg. Co. Ltd. vs. Collector of Central Excise 1993 (63) E.L.T. 699 (Tribunal). Accordingly, even after rejecting the contention that the product viz. CIACBP was classifiable under the sub-heading 7302.90, the Tribunal proceeded to set aside the penalty holding that the act of the respondents in not applying for Central Excise Licence was based on a bona fide belief. For a ready reference, the relevant extracts of the order may be reproduced as under -
Therefore, the appellants can be said to have been under a bona fie belief that bearing plates and brake blocks even after the change in tariff w.e.f.1- 3-1986 were classifiable as iron castings under Heading 73.07. In the light of the above, the failure of the appellants to apply for Central Excise Licence tantamount to suppression, specifically in the absence of any conscious or deliberate withholding of information. It has been held by the Supreme Court in Collector of Central Excise vs. Chemphar Drugs and Liniments 1989 (40) E.L.T. 276 that "something positive other than mere ination or failure on the part of manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required, before it is saddled with any liablility beyond the period of 6 months. In the case of Padmini Products vs. Collector of Excise 1989 (43) ELT 195 the Supreme Court held that mere failure or negligence on the part of the producer or manufacturer [not to take out] a licence in case where there was scope for doubt as to whether the licence was required to be taken out, would not attract Section 11A of the CESA, 1944. In this case, we have already held that the appellants were under a bona fide belief that no licence was required to be taken out by them in view of the long standing practice of classification of castings under T.I. 25 and availability of the benefit of Notification No.208/83 even subsequent to 1-3-1986 when castings fall under Heading 73.07. This bona fide :: 5 ::Cr. Appeal No.236/1994
belief is further fortified by the fact that HSN Explanatory Notes were available only in Sept.85 and complete alignment of the Central Excise Tariff with the HSN took place only in 1986.
8. Adverting to the judgment under challenge, it may be observed that learned ASJ set aside the findings of guilty primarily for the reason that on the basis of same set of facts and evidence, the Tribunal had already exonerated the respondents from the penal consequences on the ground that their omission to apply for the licence or to pay the duty was not mala fide.
9. While assailing legality and propriety of the impugned acquittal, learned counsel for the appellant has vehemently contended that the findings in the adjudication proceedings could not be taken into account while deciding the appeal against conviction as prosecution in a criminal Court has to be determined on its own merits uninhibited by the finding of the Tribunal. He has further urged that mens rea is not a constituent part of the offence under Section 9 of the Act.
10. In response, learned counsel for the respondents has submitted that even the prosecution of the respondents was not sustainable in view of exculpatory and conclusive findings of the Tribunal, which is the successor of Central Government by virtue of Section 35-B of the Act. To buttress the contention, reliance has been placed on the following decisions -
(i) G.L. Didwania v. Income Tax Officer (1997) 140 CTR (SC) 273
(ii) S.K. Sinha v. S.K. Singhal 1987 (30) E.L.T. 900 (Del.)
(iii) Swathy Chemicals Ltd. v. Union of India (2002 (139) E.L.T. 498 (Mad.)) :: 6 ::Cr. Appeal No.236/1994
(iv) Chiramith Precision (India) v. Deputy Commr. Of Cus. (P), Mangalore (2004 (169) E.L.T. 145 (Kar.))
(v) Jagmohan Jindal and Anr. v. State of West Bengal
(vi) Metal Forgings Pvt. Ltd. and Ors. v.
Superintendent (Preventive), Central Excise.
(vii) Rajesh Kothari and another v. A.S.
Bandopadhyay, Superintendent of
Customs
(viii) Ajay Gulati v. Union of India (2008 (228)
E.L.T. 177 (Del.)
11. However, as explained by a three Judge Bench of the Apex Court in Standard Chartered Bank v. Directorate of Enforcement (2006) 4 SCC 278 though with reference to the analogous provisions of FERA, proceedings of adjudication and prosecution being independent of each other can be launched and pursued simultaneously.
12. On a conspectus of all leading decisions on the subject, the legal position as to effect of adjudication on prosecution can be summed up in no better way than the one adopted by Justice A.K. Sikri in Sunil Gulati vs. R.K. Vohra 2007 (1) JCC 220. The relevant extracts of the judgment may be reproduced as under -
1) On the same violation alleged against a person, if adjudication proceedings as well as criminal proceedings are permissible, both can be initiated simultaneously. For initiating criminal proceedings one does not have to wait for the outcome of the adjudication proceedings as the two proceedings are independent in nature.
2) The findings in the departmental proceedings would not amount to res judicata and initiation of :: 7 ::
Cr. Appeal No.236/1994criminal proceedings in these circumstances can be treated as double jeopardy as they are not in the nature of "prosecution".
3) In case adjudication proceedings are decided against a person who is facing prosecution as well and the Tribunal has also upheld the findings of the adjudicators/assessing authority, that would have no bearing on the criminal proceedings and the criminal proceedings are to be determined on its own merits in accordance with law, uninhibited by the findings of the Tribunal. It is because of the reason that in so far as criminal action is concerned, it has to be proved as per the strict standards fixed for criminal cases before the criminal court by producing necessary evidence.
4) In case of converse situation namely where the accused persons are exonerated by the competent authorities/Tribunal in adjudication proceedings, one will have to see the reasons for such exoneration to determine whether these criminal proceedings could still continue. If the exoneration in departmental adjudication is on technical ground or by giving benefit of doubt and not on merits or the adjudication proceedings were on different facts, it would have no bearing on criminal proceedings. If, on the other hand, the exoneration in the adjudication proceedings is on merits and it is found that allegations are not substantiated at all and the concerned person(s) is/are innocent, and the criminal prosecution is also on the same set of facts and circumstances, the criminal prosecution cannot be allowed to continue. The reason is obvious criminal complaint is filed by the departmental authorities alleging violation/ contravention of the provisions of the Act on the part of the accused persons. However, if the departmental authorities themselves, in adjudication proceedings, record a categorical and unambiguous finding that there is no such contravention of the provisions of the Act, it would be unjust for such departmental authorities to continue with the criminal complaint and say that there is sufficient :: 8 ::Cr. Appeal No.236/1994
evidence to foist the accused with criminal liability when it is stated in the departmental proceedings that ex-facie there is no such violation. The yardstick would, therefore, be to see as to whether charges in the departmental proceedings as well as criminal complaint are identical and the exoneration of the concerned person in the departmental proceedings is on merits holding that there is no contravention of the provisions of any act.
13. In all the above-mentioned decisions cited by learned counsel for the respondents, the criminal proceedings were quashed under inherent powers, which Section 482 of the Code of Criminal Procedure, purports to save. However, no such powers have been conferred on the Court of Session. The appeal, therefore, concerns a different question as to the power of the appellate Court to take note of an event subsequent to the conviction recorded by the trial Court. In other words, the point for consideration is as to whether a finding of guilt recorded by learned Magistrate could be set at naught simply because the respondents were exonerated from the penal consequences by virtue of a subsequent order passed by the Tribunal.
14. Obviously, the ground that was not in existence at the time of filing of the Criminal Appeal could not be urged at the time of final hearing thereof. Further, a bare perusal of the impugned judgment would reveal that it was primarily influenced by the findings recorded by the Tribunal whereas the appellate Court was under a solemn duty to look into the evidence adduced in the case and arrived at an independent conclusion as to whether the evidence could be relied upon. However, learned ASJ took an easy course of endorsing the view taken by the Tribunal without going into the merits of contentions raised for and against the conviction in question. But, in appeal against :: 9 ::
Cr. Appeal No.236/1994acquittal whether recorded by the trial Judge or the appellate Judge, this Court has the same power as it has in an appeal against conviction. Accordingly, it can review at large all the evidence on record and reach the conclusion that thereupon the order of acquittal should be reversed.
15. Before proceeding to analyze the evidence on record, it would be necessary to refer to the statutory presumption as contemplated in Section 9C of the Act regarding culpable mental state. It reads as under -
9C. Presumption of culpable mental state. (1) In any prosecution for an offence under this Act which requires a culpable mental state on the part of the accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution.
Explanation. -- In this section, "culpable mental state"
includes intention, motive, knowledge of a fact, and belief in, or reason to believe, a fact.
(2) For the purposes of this section, a fact is said to be proved only when the Court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.]
16. In Noor Aga vs. State of Punjab 2008 AIR SCW 5964, the Apex Court had the occasion to examine the constitutional validity of Section 35 of the Narcotic Drugs and Psychotropic Substances Act, 1985, which is in pari materia with Section 9C (above). It was held that the burden of proof under certain circumstances is placed on the accused would not, by itself, render the provision unconstitutional. The ambit and scope of the presumption was further explained in the following terms -
:: 10 ::
Cr. Appeal No.236/1994"presumption would operate in the trial of the accused only in the event the circumstances contained there are fully satisfied. An initial burden exists upon the prosecution and only when it stands satisfied, the legal burden would shift. Even then, the standard of proof required for the accused to prove his innocence is not as high as that of the prosecution"
17. Accordingly, the contention that mens rea was not required to be proved is apparently misconceived. Further, the evidence on record that comprised of the sworn testimony of R2 clearly established the following facts -
(i) Prior to the introduction of the 1985 tariff, CIACBP was classified under T.L.25 as iron castings fully exempt from payment of duty by virtue of Notification 208/83 dated 01.08.1983.
(ii) Even after the change in tariff bringing the iron castings under Heading 73.07 and CIACBP under sub-Heading 7302.90, the respondents submitted the requisite declarations indicating that the product was covered by sub-Heading 7307.10.
(iii) The HSN Explanatory Notes were available only in Sept., 1985 and complete harmonization of the Central Excise Tariff with the HSN could be achieved only in 1986.
(iv) There was no possibility of any wrongful gain to the respondents as duty payable on the product was ultimately to be borne by the Railways in pursuance of the relevant term of the agreement.
18. In the light of these facts, mere failure to take out licence or pay duty, in absence of a contrary evidence that the respondents knew that the product was excisable, was not :: 11 ::
Cr. Appeal No.236/1994sufficient to attract criminal liability under Section 9(1)(d) of the Act [See. M/s Padmini Products's case (supra)].
19. To sum up, even though it was not legally permissible to wipe out the impugned conviction consequent upon exoneration of the respondents in the adjudication proceedings yet, even on merits, a dishonest intention of evading payment of duty was not attributable to the respondents in view of aforesaid facts. Thus, in effect, the impugned order of acquittal does not require any interference.
20. Consequently, the appeal against acquittal stands dismissed.
Appeal dismissed.
(R.C. Mishra) JUDGE 5/3/2009