Bombay High Court
Shree Agency vs Assistant Collector C. Ex., Kolhapur on 12 July, 1961
Author: Y.V. Chandrachud
Bench: Y.V. Chandrachud
JUDGMENT
1. This petition arises out of a demand notice issued by the Superintendent of Central Excise for a sum of Rs. 52,290, subsequently altered to Rs. 43,020, Against the petitioners.
2. The petitioners are a partnership firm which carries on business as wholesale dealer in yarn and cloth in Sangli. It consists of four partners and the main business they do is to purchase and sell yarn and cloth as alleged by them. They do not own any powerloom factories as such. In respect of their activities of selling yarn and purchasing cloth the Superintendent of Central Excise, Jaisingpur (Rural), acting under the provisions of the Central Excise & Salt Act, 1944 and Rules, made a demand upon the petitioner firm on the 11th of May, 1957, for a sum of Rs. 2,32,614.12 nP. as Excise Duty payable on the cotton fabrics, which he alleged were manufactured by the petitioners in the factories belong to others. The period for which they were assessed was from 1st of July, 1956 to 30th April, 1957. The petitioners made a representation to the Assistant Collector of Central Excise, Kolhapur, against the said demand notice. The Assistant Collector made an order on the 30th of September 1957, confirming that demand. The petitioners made an appeal to the Collector of Central Excise in about January, 1957, and also wrote a letter requesting for certain concessions and also requesting that the deposit required prior to the filling of the appeal be waived. In respect of their request for concessions in the demand being made on a certain basis, certain correspondence passed between the petitioners, the Collector of Central Excise and the Assistant Collector of Central Excise. The question was reopened ultimately the department agreed to levy compounded duty. The Assistant Collector of Central Excise, after giving opportunity to the petitioners to present their case in person, held that the petitioners satisfied the definition of the word 'manufacturer', that they were manufacturing the cloth in respect of which the assessment was being made but that they had adopted a circuitous method to avoid payment of duty. He held that the petitioners were liable for the entire period though they alleged that they had not even purchased the cloth manufactured by the petitioners and directed the Superintendent of Central Excise, Ichalkaranji, to revise his demand keeping in view the directions that he gave. It is this order that is sought to be challenged in this court.
3. It may be mentioned that after this order, an appeal has been lodged with the Collector of Central Excise on the 19th of February 1960. A letter was written to the Collector of Central Excise on 20th of January, 1960, requesting him to waive the deposit required by the rules. Some correspondence ensued and the Collector of Central Excise finally on the 4th of June, 1960, turned down the request for waiver of the deposit. The petitioners made an application to the Central Board of Revenue to waive the deposit as the ultimate control lies with the Central Board. On 21st January, 1961, Central Board informed the petitioners that the deposit could not be waived. The present petition has been filed on the 19th of January, 1961, i.e., two days before that order.
4. The orders have been challenged on three grounds, namely, (1) violation of the rules of natural justice during both the enquiries; (2) the findings that have been made are not justified by the evidence on record; and (3) that even the facts found do not justify the conclusion that the petitioners are liable to duty.
5. Mr. Gupte on behalf of the respondents-Government has raised two preliminary objections to the maintainability of the petition. He contends that the statute provides an alternative remedy by way of an appeal which the petitioners in fact themselves pursued, and secondly, that there is a great deal of delay. On these two grounds, he says that the petition should be dismissed in limine.
6. Taking up the first preliminary objection Mr. Gupte relies on a decision of the Division Bench consisting of Mr. Justice Dixit and Mr. Justice Tendokar in Special Civil Application No. 121 of 1957, decided on the 9th of March, 1957. It was contended that the remedy by way of appeal was onerous as it required a deposit of the tax imposed, and reliance was placed on the observations in the case of Himmatlal Hiralal Mehta v. The State of Madhya Pradesh and Others - 1954 S.C.R., P. 1122, to the following effect :
"Moreover, the remedy provided by the Act is of an onerous and burdensome character. Before the appellant can avail of it he has to deposit the whole amount of the tax. Such a provision can hardly be described as an adequate alternative remedy."
7. The learned judges distinguished that case on the ground that there the tax was challenged on the ground of the section being ultra vires to the State Legislature. Mr. Mehta relies upon two judgments of this court in Special Civil Application No. 1630 of 1958, decided on 26-8-1958 and Appeal No. 20/1959 decided on 26-4-1960, where in view of the rule regarding deposit the Court entertained the applications under Article 226. In view of these cases, we do not like to dispose of this matter only on the ground that an alternative remedy is available to the petitioners.
8. The second ground urged by Mr. Gupte is one of delay. In the present case the first notice of demand was issued in 1957. The petitioners knew the attitude of the officers of the Central Excise Department which clearly showed that they were of the view that the petitioners were manufacturing the cloth though actually they were not the owners of the factories where it was being manufactured. Even after re-hearing, the petitioners' request for the waiver of deposit was clearly negatived by the Collector of Central Excise as early as 4th June, 1960. It is no doubt true that the petitioner did approach the Central Board of Revenue for the waiver of deposit. From the contentions now made before us, it is clear that they did intend to pursue the remedy by writ which was clearly mentioned in their letters, dated 20th January, 1958. The grounds which are now made were available to them immediately after the order was made and also immediately after the Collector of Central Excise refused to waive the deposit. It appears to us that there is inordinate delay in coming to this Court and the attempt is merely to delay the payment of the tax. Even in the contentions made by the petitioners before the Assistant Collector of Central Excise in their own representation, they contended that the tax would come to a sum of Rs. 17,000 and odd. They have not deposited even this amount so far. All along, their insistence was on waiver of deposit except to the extent of 10 per cent of the duty demanded by the department. We are of the view that this application should be dismissed on this ground. As, however, we have heard the matter fully, we may express our opinion on the merits as well.
9. The findings show that the petitioners supplied yarn to the owners of the powerlooms and apparently purchased cloth from them. Dealings showed that the adjustments were so made that the petitioners paid the owners of the looms only as 2 1/2 to 2 3/4 annas per yard and no more. Accounts further showed that the accounts were never made up to show the actual sales and purchases at a particular point of time, but were adjusted only at the end of the year. In respect of the transactions after December, 1956. The accounts further showed that though a show was made by the petitioners of not purchasing the cloth, in fact and in reality, they deal with the cloth as if they were the owners. The manufacturers did not know where and how the cloth was processed and where and how it was disposed of. Admittedly bills were prepared by sub-dalals of the petitioners who according to them acted as dalals. So far as the monetary dealings were concerned, they continued to remain as they were before December, 1956.
10. The first contention made is that the Assistant Collector violated the rules of natural justice inasmuch as material which was collected behind the back of the petitioners was utilized in arriving at the decisions made by the Assistant Collector of Central Excise. In order to examine this contention, we must first go to the first order, dated the 28th of September 1957, in respect of the enquiry held on their representation to the first demand notice for a sum of Rs. 2,32,614.12 nP. Their contentions then were : (1) that the petitioner firm was mainly engaged in sale of yarn and purchase of cloth, and that sometimes fabrics prepared from the same yarn which they had sold were purchased if the rates were suitable and even in such cases the cloth purchased was not equivalent to the yarn sold; (2) that they sometimes acted as brokers and commission agents for yarn and cloth or both and their interest was limited to commission only; (3) that the firm did not satisfy the definition of the word 'manufacturer' in order to be liable for this duty; (4) that the Superintendent of Central Excise had calculated the duty for the production from January, 1957 to April, 1957; (5) that they had stopped the business of purchasing cloth from the listed factories from January, 1957 onwards; and (6) that the entire production from June, 1956 to December, 1956, of the factories had been calculated in making that, demand though they had purchased only a limited quantity of cloth from those factories, and they did not even know as to whom the balance of cloth was sold by those factories. At the time of the enquiry, the petitioners were granted personal hearings on the 10th and 19th of September, 1957. On the 10th, both the partners appeared and on the 19th one partner appeared before the officer along with their own books of account for the Samvat years 2012 and 2013. From the order, it appears clear that the material which the officer had collected was put to these representatives of the petitioner firm.
11. It is desirable how to take up each of the reasons mentioned in the order and to see how far the contention is justified. In the account books the value of the yarn issued to the mills and the value of the cloth received from the mills appear to have been shown separately fork each mill. On the examination of the account books produced by the petitioners it was found that entries in the books were not complete for all the months. It was found that the accounts for the supply of yarn were not settled with the mills every month. Even the credits in the accounts showed that they were made when the cloth was finally billed after calendering and processing in Bombay. Apart from the debits made for the cloth, there were weekly debits of cash made to the mills for smaller amounts. After making a note of these facts, the petitioners' representative, Mr. Kulkarni, was asked his explanation regarding each of these matters and he stated that these payments were according to the practice followed by all the mills. It also appeared from the accounts of the mills that the accounts were not finalised even at the end of the year or at any earlier stage. This also appeared to be the state of affairs of the account books of the petitioners themselves. The partner who was present was asked his explanation and the explanation was that the credit was made only when the cloth was finally billed for after calendering and processing in Bombay. He also explained the entries in their stock register on this question. The office concerned then referred to certain dealings of those mills in the past. Ordinarily these mills used to purchase yarn on their own account either from local dealers or from Bombay merchants and were not getting credit exceeding Rs. 5,000 to Rs. 6,000 at any time and that too at certain definite rate of interest. He then compared account of such transactions with the transactions of the petitioners from their own books. Instances were pointed out to Mr. Kulkarni, who represented the petitioners, that yarn of several thousand purposes was issued on credit to factory owners having only 2 or 3 powerlooms, which appeared to be contrary to ordinary business dealings of merely selling yarn and buying cloth; and the explanation given by the partner was that he was doing that business only on moral hazard. Objection is taken to the observations to the effect that :
"Investigations were undertaken by the Superintendent, C.E., Jaisingpur (Rural), with the owners of all the powerloom factories separately to ascertain if they know the amount of transaction and if they had any account to show the amount payable by them to M/s. Shree Agency on account of yarn and cash payments received by them. The enquiry conclusively revealed that none of the owners of the powerloom factories were in a position to know the amount due to M/s. Shree Agency."
AND "In course of enquiry by the Superintendent, C.E., Jaisingpur (Rural), on 29-8-1957 and 30-8-1957, Shri K. Abdulkhan of Hanuman Weaving Mills, Shri Karimbhai Abdulkhan of Ganubhai Weaving Mills and Shri Phatak of Jai Shree Mills also admitted that M/s. Shree Agency had assured them that the accounts of sale of yarn to them and the purchase of cloth from them will be adjusted by M/s. Shree Agency in such a way that they would get Ans. 2/6 to Ans. 2/9 per yard of cloth woven."
12. This might at first sight appear to be something which was collected behind the back of the petitioners and utilised against them. But then the order shows that the same state of affairs was revealed by the account books produced by the petitioners. It would also appear that even the representatives were to explain this materials. Apart from this, that is material in confirmation of what is revealed by the account books of petitioners themselves and they cannot be said to complain about the use of the same.
13. Objection is also taken to conclusions Nos. 3, 4, 5 and 6 appearing at page 31 of the compilation, which are in respect of the transactions after December, 1956. So far as No. 3 is concerned, this could be known from the books of account of the petitioners themselves. The fourth ground mentioned by the officer is that on going through the bills of the factories it was seen that the bills were written by the people of M/s. Shree Agency for all the factories. So far as the 5th and 6th grounds are concerned it is stated that : "From the Bill Books, it is seen that the factory owners have signed the blank bills before hand." It is argued that no one was questioned in the presence of the petitioners and they had no chance of cross-examining the witnesses. It appears to us that the contention is unfounded and it does injustice to the officer concerned. As is evident from the earlier discussion in the previous paragraph, that questions were put to Mr. Kulkarni who was appearing on behalf of the petitioner firm and stated :
"...... the firms in Bombay were introduced to the factory owners (presumably by the petitioners); and M/s. Shree Agency has been acting only as commission agent viz., 'Dalal' to these mills for disposal of their goods in Bombay."
14. He further explained that there were two sub-dalals who acted as dalals on behalf of M/s. Shree Agency and that the bills for the sale of cloth issued from the different factories were prepared by the dalals in the bill books of the different factories and the bill books were returned to the parties; that, however, the parties issued the hundies on the same day of despatch of the goods in favour of M/s. Shree Agency and they received payments from the Bombay firms and that if there were any defects which were noticed after calendering and processing of the goods M/s. Shree Agency was charged for the same by the Bombay firms. In view of this clear and unequivocal statement by the partner, who appeared on behalf of the petitioners the ground that is now made to say the least, is thoroughly unfounded.
15. So far as the subsequent order, dated 21st December, 1959 is concerned, the findings are given after giving the petitioners a personal hearing. The facts relied upon in that order are those which appeared from their own account books, the admissions made by the representatives on the previous occasion and, in addition, the affidavits filed by the petitioners sworn by some of their suppliers and their account books which the petitioners produced with their representation.
16. It is very seriously urged by Mr. Mehta that at the time of the second enquiry, the petitioners were not informed about the materials and the evidence that was collected by the Superintendent of Central Excise before the prior enquiry. There is no substance in this contention. At the previous enquiry there were personal interviews and they were told what was against them and their explanations were asked. Apart from that, at page 83, Ex. 7 is a letter written by the Assistant Collector of Central Excise, Kolhapur, to the petitioners in answer to the queries by the petitioners. The petitioners desired that the grounds on which the demands were made against them should be specified so as to enable them to prepare their reply. The officer reminds the petitioners that the matter was at per time investigated in detail, that there were personal hearings and it was therefore, presumed that the petitioners were fully aware of the grounds on which the demands were based. That the Superintendent of Central Excise had already forwarded to the petitioners a statement showing the calculations on the basis of which he had worked out the new demand. They were directed to contact the Superintendent of Central Excise, Ichalkaranji, if they wanted any further information in that respect. It also reminds the petitioners that the earlier order by his predecessors was endorsed over to the petitioners. It is clear, therefore, that the petitioners were not ignorant of the material that was once used in the first enquiry and which was going to be used in the second enquiry. This fact is amply demonstrated if we turn to the representation made by the petitioners at the hearing in writing. This is Ex. 8. It is not necessary to deal in detail with this, but it clearly shows that they made the best attempt they could to answer and refute all the points covered by the earlier order. Not only that, taking one of the mills as an illustration, they produced profit and loss accounts of the mill and affidavits of several dealers who had purchased yarn from them and sold fabrics to them. This clearly shows that they have not been taken by surprise. They had more than enough time and opportunity to make such defence as they liked to the points against them. It would also pass comprehension that when actually personal hearings are given, no questions would be put by the officer concerned, to their representatives. It is not possible, therefore, to accept this contention also.
17. It is then contended that the petitioners had no opportunity to cross-examine any of the persons from whom statements had been taken by the officer behind their back. Such a complaint was never made, in fact, before the officer concerned at the time of the inquiry. Not only that, as we have shown, while dealing with the first order, there was nothing on which any cross-examination was needed inasmuch as almost all the facts were admitted by the representatives of the petitioners.
18. We may also say in passing that the petition is most inadequate to deal with the grounds now made at the hearing since it contains only general allegations. No specific piece of evidence realised upon by the officer has been specifically challenged as having been used without asking for any explanation from the petitioners. We have not, however, taken these technicalities into account while dealing with this petition nor do we find it necessary to consider the argument of Mr. Gupte that the enquiry in such cases is merely administrative and not quasi-judicial so as to attract the application of the rule of natural justice to it.
19. The next contention is that the findings made by the officers in the enquiry are not supported by any evidence. We have no hesitation in saying that the mode of dealings, as summarized by these officers, clearly points to the conclusion which they have drawn from the materials before them. As to whether the evidence was sufficient or not could not be a matter to be determined in a writ petition, and even if we were considering the matter ourselves, we would have arrived at the same conclusions to which the officers in question have arrived at.
20. The last contention is that even if the facts found by the officers are accepted, the petitioners are not liable to any Excise Duty. We may state that it was because of this question that we have gone into the merits of this petition. The findings of the officers are in respect of two periods from June, 1956 to December, 1956, and from 1st January, 1957 to 30th April, 1957. The inference from the facts found would appear to be that the petitioners were getting the cloth prepared from the yarn supplied by themselves, and were paying only the labour charges to the owners of the factories. The question is whether they are liable to the Central Excise Duty.
21. Relevant section for this purpose is Section 3 of the Central Excise and Salt Act, 1944. It says :
"(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods ......... which are produced or manufactured in India ...... ...... and the rates, set forth in the First Schedule."
22. Cotton fabrics is one of the items in the schedule. Whether the fabrics are manufactured in mills or on looms would not make any differences except as to the rate of duty. The section does not say as to who shall pay the tax. It taxed the goods themselves whenever and howsoever manufactured. Rule 7 framed under the rule making powers under the Act lays down the mode in which the duty is to be collected. It provides that :-
"Every person who produces, cures or manufactures any excisable goods ..... shall pay the duty or duties leviable on such goods."
23. It is only by placing reliance on this rule that it is contended that the petitioners are not manufacturers of these fabrics and, therefore, not liable. The word 'manufacture' and 'manufacturer' has been defined in Section 2, sub-section (f) of the Act. The first portion defines the word 'manufacturer' and the latter 'manufacturer' and it says :
"..... shall be construed accordingly and shall include not only a person who employs hired labour in the production, or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account if those goods are intended for sale."
24. The definition as given is indeed very wide. It does not refer to the ownership of the factory where the goods are manufactured. It covers anyone who employs hired labour in the production and manufacture of goods and we have no doubt that the petitioners would be included even in this portion of the definition. The second part 'who manufactures, or engages in their production or manufacture on his own account', would also apply to the petitioners. It is not possible to accept the interpretation that when the words used are 'who employs hired labour' they must mean necessarily the owner of the factory. It is also not possible to accept the suggestion that when the words used are 'engages in their production on his own account' they must mean the owner of the factory or the person who himself in doing the manufacturing process. Apart from this, the definition is an inclusive definition which must mean that the two instances mentioned would not necessarily exhaust all these who would come within the meaning of the word 'manufacture'. The word must be construed with due regard to the present day conditions and would necessarily include persons in the position of the petitioners, who get goods manufactured by some one else for sale on their account.
25. We are, therefore, of the view that the conclusion arrived at by the Central Excise Officers that the petitioners are liable to the levy is fully justified by the terms of the statute. The result is that the application fails and is dismissed with costs.