Orissa High Court
Kay Pan Sugandh Pvt. Ltd. vs Commissioner Of Central Excise Customs ... on 5 July, 2017
Author: Biswajit Mohanty
Bench: I. Mahanty, Biswajit Mohanty
ORISSA HIGH COURT, CUTTACK
W.P.(C) No.9628 of 2016
In the matter of an application under Articles 226 and 227 of the
Constitution of India.
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Kay Pan Sugandh Pvt. Ltd. ...... Petitioner
-versus-
Commissioner of Central Excise
Customs & Service Tax, ...... Opp. Party
Rourkela.
For Petitioner : Mr. Arshad Hidayatullah,
Senior Advocate
For Opp. Party : Sh. Choudhury Satyajit Misra
Senior Standing Counsel
(Central Excise Department)
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Date of Judgment: 05.07.2017
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P R E S E N T:
THE HONOURABLE SHRI JUSTICE I. MAHANTY
and
THE HONOURABLE SHRI JUSTICE BISWAJIT MOHANTY
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Biswajit Mohanty, J. The petitioner has filed the present writ application
with a prayer to quash the impugned order-in-original dated
29.2.2016 (Annexure-1) passed by the learned Commissioner of
Central Excise, Rourkela.
2. The petitioner is an assessee registered as manufacturer with
the Central Excise Department and is engaged in manufacture of
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'Pan Masala containing Tobacco' commonly known as "Gutkha" with
retail sale prices of Rs.1, Rs.1.50 and Rs.2/- per pouch with effect
from 7.4.2010. The case of the petitioner is that it is clearing the
above noted goods under the brand name "Safal", which is owned by
M/s. Kamlakant and Company, Kanpur. The owner has given the
right to use the said brand to different companies across the Country
as per agreements under which the user companies like the
petitioner are required to pay royalty to the above noted brand
owner. Such "Gutkha" manufactured with the aid of packing
machine and packed in pouches has been notified as goods falling
within the purview of Section-3A of the Central Excise Act, 1944, for
short, "the Act" for the purpose of levy and collection of excise duty
vide notification under Annexure-3. Further, the Central Government
in exercise of powers conferred by sub-sections (2) and (3) of Section-
3A of "the Act" has notified "Pan Masala Packing Machines (Capacity
Determination and Collection of Duty) Rules, 2008, for short, "the
Rules". The said rule was amended during 2010. As per "the Rules",
the factor relevant to the production of notified goods which is
"Gutkha" in the present case shall be the number of packing
machines in the factory of manufacturer. According to the petitioner,
the said Rules also indicate the number of pouches deemed to be
produced per operating/packing machine per month. Further, as per
Rule-6 of "the Rules", a manufacturer is required to declare a
number of particulars in the prescribed Form-I, which include inter
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alia the number of single track packing machine, the number of
multiple track packing machine and number of multiple track
multiple line packing machines installed in the factory, which the
manufacturer intends to operate. On receipt of such declaration, the
Deputy Commissioner of Central Excise or the Assistant
Commissioner of Central Excise, as the case may be, shall after
making such enquiry as required including physical verification,
approve the declaration and determine and pass order concerning
the annual capacity of production of the factory in accordance with
"the Rules". In case the manufacturer wishes to make subsequent
changes, it is required to file fresh declaration at least three working
days in advance to the authorities. In tune with the above
requirement, the petitioner filed the requisite declaration in Form-I
during the relevant period before the Assistant Commissioner of
Central Excise, Sambalpur-II, Division clearly indicating the number
of single track packing machines available/installed in the factory
and the number of such machines, which it intends to operate in its
factory for production of notified goods. In the declaration Form,
according to the petitioner, it was specifically indicated therein that it
would be manufacturing "Gutkha" of retail sale prices Rs.1/-,
Rs.1.50, and Rs.2/- per pouch during the relevant period. On receipt
of such declaration, after making the required enquiry, the Deputy
Commissioner of Central Excise passed orders determining the
annual capacity of production of the petitioner's factory for the
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relevant period. Further, according to the learned Senior Counsel
appearing for the petitioner almost every month during the relevant
period a number of Officers from the Central Excise Department
visited the factory premises and none found any discrepancy relating
to the sale price of "Gutkha". However, on 10.9.2011 a search was
conducted by the Officers of Central Preventive Unit, Bhubaneswar-II
acting on some alleged information that the petitioner was also
manufacturing and clearing "Gutkha" of MRP Rs.5/- per pouch
under the brand name "Safal".
3. On 10.9.2011, the department also carried out simultaneous
searches at the premises of the dealers of the petitioner, namely, Shri
Jagabandhu Chell, Proprietor M/s. J.B.Chell, daily market, Rourkela
and Shri Babajee Charan Biswal, Shop No.36, Unit-I Market,
Bhubaneswar. From these two dealers "Safal" brand "Gutkha"
pouches bearing MRP Rs.5/- were seized. Mr. Jagabandhu Chell in
his statement recorded under Section-14 of "the Act" stated that he
had received the seized pouches from M/s. Jagannath Enterprise of
Seeraj Bhawan, Bhati Road, Rourkela. Mr. Tapan Chandra Dey,
Proprietor M/s. Jagannath Enterprise in turn stated that he has
received these pouches from the petitioner.
4. Shri Babajee Charan Biswal, the other dealer in his statement
under Section-14 of "the Act" stated that he procured "Safal" brand
"Gutkha" pouch bearing MRP Rs.5/- from Mitu Sahoo @ Soumendra
Kumar Sahoo, Kalinga Market, Bhubaneswar. Mr. Soumendra
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Kumar Sahoo in turn stated that he had procured "Safal" brand
"Gutkha" pouches having MRP Rs.5/- manufactured by the
petitioner from a person as instructed by Shri Neeraj Sharma,
Director of the petitioner by paying cash.
5. During course of investigation, the authorities got hold of some
advertisements in print and electronic media relating to
advertisement of "Safal "Gutkha" pouch of MRP of Rs.5/- indicating
involvement of the petitioner. After the completion of investigation,
the department issued a show cause notice dated 18.9.2012 under
Annexure-20 series. The petitioner vide letter dated 25.12.2012
(Annexure-21) requested the opposite party for supply of certain
documents and more particularly the photo copy of the outer packet
which contained "Safal" "Gutkha" pouches of MRP Rs.5/-. The
Assistant Commissioner (Preventive), Central Excise, Bhubaneswar
vide letter dated 27.2.2013 under Annexure-22 series supplied photo
copy of the "Gutkha" pouches of MRP Rs.5/- along with other
documents. However, since the photo copy of outer packet in which
the pouches were packed was not made available to the petitioner,
on 14.3.2013 (Annexure-23), the petitioner again requested the
opposite party to supply a copy of the outer packet in which the
pouches were packed. When the above noted outer packet was not
supplied to the petitioner, the petitioner reiterated its prayer on
3.12.2013 vide Annexure-24. Ultimately, in absence of the photo
copy of the outer packet containing pouches, the petitioner
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submitted its interim reply on 12.12.2013 vide Annexure-25 praying
for vacating the show cause notice under Annexure-25 after
highlighting the following points.
6. In the interim reply, the petitioner made it clear that during
course of search, there was no seizure of "Safal" pouch containing
"Gutkha" showing Rs.5/- as retail price in the factory premises. The
authorities have also not found any laminating material of the size
used in packing of "Gutkha" of MRP Rs.5/-. The petitioner also took
the plea that no pouch making machine for packing of "Gutkha" of
MRP Rs.5/- was seized during seach. Further, no Feeding Disk, no
Sealing Roller, no Differential Gears and no Electronic speed
controller were found as required to alter the packing machine of the
petitioner to manufacture "Gutkha" pouches of MRP Rs.5/-. Further
no documents, diary, note book, computer print out showing
manufacture and clearance of "Safal" brand "Gutkha" of MRP Rs.5/-
were seized by the officers of the department. It also took the plea
that no employee, factory worker of the petitioner made any
statement to the effect that the petitioner was engaged in
manufacture of "Gutkha" of MRP Rs.5/-. The petitioner also disputed
the statements made by Tapan Chandra Dey, Proprietor of M/s
Jagannath Enterprises and Saumendra Kumar Sahoo. There the
petitioner made it clear that it reserved the right to file a reply after
receipt of the photocopy of the outer packet and after cross-
examination of Tapan Chandra Dey and Saumendra Kumar Sahoo
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as it disputed its version. It further took the stand in Annexure-25
that the brand name "Safal" belongs to M/s. Kamlakant and
Company, Kanpur which has assigned the use of said brand name to
various companies like the petitioner. Besides the petitioner one
such company was/is M/s. Kay Pan Masala Pvt. Ltd., Ghaziabad.
There the petitioner invited the attention of the authorities to a letter
dated 12.9.2011 written by M/s. Kay Pan Masala Pvt. Ltd. to the
Assistant Commissioner, Division-V, Central Excise, Ghaziabad
informing him that M/s. Kanodia Technoplast Ltd., was the
manufacturer of laminated products used by it and in the month of
April, 2011 it had sent for lamination meant for manufacture of its
newly launched products, i.e., "Safal" brand "Gutkha" of MRP Rs.5/-.
According to the learned Senior Advocate for the petitioner, the said
laminations were wrongly printed with the name of the petitioner on
account of inadvertent mistake on the part of the labour supervisor.
Since those pouches were released to the market during May, 2011,
therefore, those goods could not be recalled. According to learned
Senior Counsel for the petitioner, the said letter further made it clear
that M/s. Kay Pan Masala Pvt. Ltd., Ghaziabad was still left with 237
Kgs. of said wrongly printed pouches. With regard to print media
advertisement, the petitioner took the stand that the said
advertisement was never released by the petitioner. With regard to
advertisement in electronic media, the petitioner took the stand that
since M/s. Kay Pan Masala Pvt. Ltd., Ghaziabad started marketing
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of "Safal' brand "Gutkha" of MRP Rs.5/-, the petitioner also thought
that it could also manufacture and market "Safal" brand "Gutkha' of
MRP Rs.5/-. Accordingly, it gave advertisement in electronic media in
July, 2011. As the response was not encouraging, the petitioner did
not proceed further with the idea and dropped the same. In any case,
the petitioner took the stand that advertisement ipso facto did not
imply manufacture of "Safal" brand "Gutkha" pouch of MRP Rs.5/-.
Besides the above stand the petitioner also took a number of
alternative pleas.
7. Vide letter dated 13/15.1.2014 the petitioner was supplied
with the photo copy of the outer packet. According to it such outer
packet contained the name and address of manufacture to be M/s.
Kay Pan Masala Pvt. Ltd., Ghaziabad and not that of the petitioner.
Accordingly, on 29.1.2016 the petitioner filed its written submission
reiterating his stand that there existed no evidence to establish
manufacture of "Safal" brand of "Gutkha" of MRP Rs.5/- by the
petitioner as "Safal" brand "Gutkha" pouch of MRP Rs.5/- was never
found from the factory premises. Further, no pouch making machine
manufacturing "Safal" brand "Gutkha" of MRP of Rs.5/- was found
during search of the factory premises. Since the case of the
department was mainly based on the statements of Tapan Chandra
Dey and Soumendra Kuamr Sahoo, their cross-examination was very
vital. It also took the plea that the goods seized from the dealers were
manufactured by M/s. Kay Pan Masala Pvt. Ltd., Ghaziabad. It also
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reiterated the alternative pleas in its written submission dated
29.1.2006 under Annexure-27.
8. However, according to the learned Senior Counsel for the
petitioner, without meeting the points raised by the petitioner under
Annexures-25 and 27 and without allowing the cross-examination of
Tapan Chandra Dey and Soumendra Kumar Sahoo, the impugned
order under Annexure-1 has been passed confirming the demand of
Central Excise duty of Rs.237,92,85,000/-. Further, the opposite
party has directed for recovery of interest at an appropriate rate on
the above demanded amount with penalty i.e., equivalent to the
demanded amount. The opposite party has further imposed penalty
of Rs.5,00,00,000/- each on two directors of the company. Mr.
Hidayatullah, learned Senior Advocate submitted that the impugned
order under Annexure-1 ought to be quashed as the same has been
passed in violation of principles of natural justice as the petitioner
has not been allowed to cross-examine Tapan Chandra Dey and
Soumendra Kumar Sahoo, whose statements form the backbone of
the case of the department/revenue. Though, he pointed out very
many facts relating to non seizure of "Gutkha" pouch of MRP Rs.5/-
from the factory premises, non seizure of machines with capacity to
manufacture of "Gutkha" pouch of MRP Rs.5/- from the factory
premises and non seizure of any document whatsoever from the
factory premises showing manufacture and clearance of "Safal"
brand "Gutkha" of MRP Rs.5/- during search and that mere
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advertisement cannot imply manufacture of the disputed goods;
however, he mainly attacked the impugned order under Annexure-1
on the ground of violation of principles of natural justice. According
to him the impugned order was/is legally vulnerable as no
opportunity was granted to the petitioner to cross-examine the above
noted two persons, whose statements on the facts and circumstances
constitute the backbone of the case of the revenue. If the version of
these two persons are demolished in the cross-examination, then the
case of the department would collapse. In such background, he
prayed that the impugned order be quashed and the opposite party
be directed to give an opportunity to cross-examine the above noted
two persons before passing order afresh. In this context, he relied on
a decision of the Supreme Court in the case of Andaman Timber
Industries -vrs- Commissioner of C. Ex., Kolkata-II, reported in
2015 (324) E.L.T. 641 (S.C.).
9. Per contra, Mr.Choudhury Satyajit Misra, learned Senior
Standing Counsel appearing on behalf of the department defended
the impugned order and submitted that there has been no violation
of principles of natural justice in the present case. He relied on a
decision of the Supreme Court in the case of Kanungo and Co. -
vrs- Collector of Customs, Calcutta and others, reported in 1983
(13) E.L.T.1486 (S.C.).
10. In reply, Mr. A. Hidayatullah, learned Senior Counsel
submitted that the facts as indicated in Kanungo and Co. (supra)
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are factually distinguishable as in that case there is nothing to show
that the prayer for cross-examination was made by the petitioner
therein at the earliest possible instance as has been done in the
present case while filing the interim reply under Annexure-25.
According to him, in that case such a plea was taken at a much
belated stage. Therefore, according to Mr. A.Hidayatullah, learned
Senior Counsel that case has no application to the facts of the
present case. Secondly, he submitted that though Kanungo and Co.
(Supra) has been published in 1983, however, the Supreme Court in
that case rendered its decision on 7.2.1972 and after that frontiers of
natural justice has been expanded much by the Supreme Court
itself.
11. In the present case, it appears that the main edifice of the case
of the department rests on the statements of Mr. Tapan Chandra Dey
and Soumendra Kumar Sahoo, who state that they got the "Safal"
brand "Gutkha" of MRP Rs.5/- from the petitioner. Since the
petitioner has taken a stand that during course of investigation
neither any pouch of MRP Rs.5/- of "Safal" brand "Gutkha" was
seized nor any machinery with capacity to manufacture of "Safal"
brand "Gutkha" pouch of MRP Rs.5/- was seized and that there was
no seizure of any document/diary/note book/computer printout
showing manufacture and clearance of "Safal" brand "Gutkha" of
MRP of Rs.5/- from the petitioner Unit, in the fitness of things the
authorities should have allowed cross-examination of the above two
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persons to test the veracity of their statements. By not doing so, in
our considered view there has been violation of principles of natural
justice. The facts in Kanungo and Co. (Supra) show that there the
petitioner was given enough opportunity including personal hearing.
Moreover, as rightly contended by Mr.A. Hidayatullah, learned Senior
Counsel in that case there is nothing to show that the petitioner
therein had demanded to cross-examine the persons, who have made
statement against it at the very initial stage like the present case.
Therefore, it appears that in the facts and circumstances of the case,
there the Supreme Court rejected the plea of the petitioner praying
for cross-examination. But here as would appear while filing the
interim show cause under Annexure-25, the petitioner has wanted to
cross-examine Mr. Tapan Chandra Dey and Soumendra Kumar
Sahoo before filing their final reply. Since the same was not acceded
to, in our considered view, the entire decision making process has
been vitiated. This is because in case during cross-examination the
petitioner is able to demolish the statements of Mr. Tapan Chandra
Dey and Soumendra Kumar Sahoo then the entire foundation of the
case of the department would collapse. In such background, the
opposite party ought to have permitted cross-examination of the
above noted two witnesses. In this context, we are satisfied that the
decision cited by Mr. A.Hidayatullah, learned Senior Counsel in
Andaman Timber Industries (supra) applies in all fours to the
present case. There also the statement of the witnesses, whom
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Andaman Timber Industries (supra) wanted to cross-examine,
formed the basis of impugned show cause. After discussing the facts
of the case, the Supreme Court held as follows:-
"xxx xxx xxx
6. According to us, not allowing the assessee to cross-
examine the witnesses by the Adjudicating Authority
though the statements of those witnesses were made the
basis of the impugned order is a serious flaw which
makes the order nullity inasmuch as it amounted to
violation of principles of natural justice because of which
the assessee was adversely affected. It is to be borne in
mind that the order of the Commissioner was based
upon the statements given by the aforesaid two
witnesses. Even when the assessee disputed the
correctness of the statements and wanted to cross-
examine, the Adjudicating Authority did not grant this
opportunity to the assessee. It would be pertinent to note
that in the impugned order passed by the Adjudicating
Authority he has specifically mentioned that such an
opportunity was sought by the assessee. However, no
such opportunity was granted and the aforesaid plea is
not even dealt with by the Adjudicating Authority. As far
as the Tribunal is concerned, we find that rejection of
this plea is totally untenable. The Tribunal has simply
stated that cross-examination of the said dealers could
not have brought out any material which would not be in
possession of the appellant themselves to explain as to
why their ex-factory prices remain static. It was not for
the Tribunal to have guess work as to for what purposes
the appellant wanted to cross-examine those dealers and
what extraction the appellant wanted from them.
xxx xxx xxx"
12. In such background, the Supreme Court concluded by saying
that if the testimony of those two witnesses is discredited then there
would no material for the department on the basis of which they can
justify their action and accordingly allowed the appeal. Taking a cue
from that, this Court has no hesitation in quashing the impugned
order under Annexure-1, which, this Court hereby does. Further,
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this Court remands the matter back to the opposite party directing
him to give opportunity to the petitioner to cross-examine Mr. Tapan
Chandra Dey and Soumendra Kumar Sahoo vis-à-vis their
statements and conclude the entire proceeding within three months
in accordance with law. However, it is made clear that this Court has
expressed no opinion on the merits of this case and no observation
made herein should in any way influence the opposite party in
coming to a conclusion afresh after taking into account the versions
of Mr. Tapan Chandra Dey and Soumendra Kumar Sahoo after they
are cross-examined.
The writ application is allowed. No costs.
..................................
(Biswajit Mohanty, J.)
I. Mahanty, J.I.agree .................................. (I. Mahanty, J.) High Court of Orissa, Cuttack Dated 5th July, 2017/ RNS