Customs, Excise and Gold Tribunal - Delhi
Mukha Mal Gokal Chand vs Collector Of Customs And Central Excise on 26 August, 1987
Equivalent citations: 1987(14)ECC423, 1987(13)ECR817(TRI.-DELHI), 1987(32)ELT163(TRI-DEL)
ORDER G.P. Agarwal, Member (J)
1. Being dis-satisfied with the imposition of penalty by the Collector of Customs & Central Excise, New Delhi under Section 74 of the Gold (Control) Act, 1968, the appellants have filed their present appeal.
2. Factual Backdrops : Appellant firm, a partnership firm, is a licensed Gold Dealer. As a result of checking of the statutory records, that is to say, GS-11 and GS-12 registers of the appellant firm on 8.9.1983, certain shortage of gold ornaments was detected by the officers concerned. It appears that at the time of search one of the partners of the appellant firm namely, Shri Parmeshwar Khanna was present. Since according to the Department Shri Parmeshwar Khanna could not give any satisfactory explanation regarding the said shortage of gold ornaments the statutory records GS-11 and GS-12 registers, receipt voucher book and issue voucher books from 1.4.1983 were taken into possession. Statement of Shri Parmeshwar Khanna was also recorded on the spot. In his statement Shri Parmeshwar Khanna had stated that the appellant firm, in addition to the jewellery business, also runs a Cinema in Dehradun and that till the death of his father Shri Shambhu Nath on 9.6.1983, the affairs of the appellant firm were exclusively managed by his father and it was only after the death of his father that he and his other brothers started looking after the jewellery business. He further stated that he and his other brothers were also partners of the firm and had not physically verified the stock in hand since the death of his father. This can be verified from his register. Immediately on the following day, that is to say, on 9.9.1983 it was informed by one of the partners of the appellant firm that actually at the time of physical verification on 8.9.1983 there was no shortage of gold ornaments as it happened that one of the partners had placed some jewellery in the drawer of the main executive table of the shop and as the said partner received an emergent call from Meerut (where the partners are running the Cinema) the said partner had to rush to Meerut and forgot to convey to the other partners about the fact that he (the said partner) had placed some jewellery in the drawer of the main executive table. In nutshell, it was represented that the alleged shortage of gold ornaments was not in fact missing but very well there in the drawers of the main executive table as stated above. It appears that no further investigation was done and on the basis of the shortage noticed on the basis of difference in the recorded balance in GS-12 and GS-11 registers the authorities concerned formed an opinion that Shri Parmeshwar Khanna and the other partners of the appellant firm are the persons concerned who omitted to do or committed an act which rendered the said gold ornaments found short in their stock, liable to confiscation under Section 71 of the Gold (Control) Act, 1968 and are also liable to penalty under Section 74 of the Act. The Show cause notice was drawn up in which the said partners were asked to show cause as to why the penalty be not imposed under Section 74 of the Gold (Control) Act. The said show cause notice was despatched under registered AD to S/Shri (1) Parmeshwar Khanna, (2) Ishwar Nath Khanna, (3) Prem Nath Khanna, and (4) Kailash Nath, partners of the appellant firm and also to the appellant firm. In reply, they reiterated the same defence that actually there was no shortage and that since the gold ornaments said to have been found missing at the time of checking were kept by one of the partners in the drawers of the main executive table, the same could not be made available for checking. But the Collector, Customs & Central Excise did not agree with the said defence and imposed a penalty of Rs. one lakh on the appellant firm but did not impose any penalty on the individual partners of the appellant firm.
3. During the pendency of the appeal the appellants moved an application for taking on record the order of the Criminal Court and the letter along with its enclosures by way of additional evidence. This application was allowed by the Bench on 12.8.1986. It appears that Shri J.S. Kapil, learned counsel for the appellants, for the reasons best known to him, requested for adjournment on the ground that he wants to file an affidavit in support of his application which was already allowed on 12.8.1986 explaining the circumstances which prevented the appellant from filing the additional evidence earlier. This request was granted and the case was adjourned. When the case was taken up for hearing on 19.8.1987 Shri Gupta, learned counsel for the appellants orally explained the circumstances which prevented the appellants from filing the additional evidence earlier and undertook to file the affidavit after the arguments, which he did. The affidavit is now on the record.
4. Shri R.R. Gupta, learned counsel vehemently submitted that the imposition of penalty on the appellants firm is totally illegal and without jurisdiction, inasmuch as, -
(i) No show cause notice was ever issued to the appellant firm; and alternatively
(ii) from the show cause notice which is on record it is clear that no allegation regarding the alleged contravention of Section 71 or 74 was made against the appellant firm and the appellant firm was never asked to show cause, and
(iii) that no penalty was proposed in the show cause notice against the firm.
On merits he submitted that the learned Adjudicating Authority erred in discarding the defence explanation as an after-thought. In the process he submitted that in para 1 of the impugned order it is clear that the explanation was given on the spot but it was not found satisfactory by the authorities concerned and therefore, the case was booked. He further submitted that the explanation that the alleged gold ornaments which are said to have been not found at the time of checking were very well there, that is to say, in the drawers of the executive table of the appellant firm and this fact finds support not only from the evidence both oral and documentary on record but also from the very fact that on 12.9.1983 after the seizure of the statutory records on 8.9.1983 the new set of statutory records were started and on 12.9.1983 the authorities concerned physically verified the stock-in-trade and certified under their signature that the firm had the balance of ornaments (which includes the alleged shortage) in their possession.
5. He also submitted that in the case of Manik Chand v. Union of India, 1984 (18) ELT 185 it was observed by their Lordships of the Supreme Court that since the amended form Nos. GS-11 and GS-12 required to maintain by a licensed Gold Dealer under Section 55 of the Gold (Control) Act are defective no action penal or otherwise could be taken against the licensed dealers for failure to maintain accounts in the amended forms GS-11 and GS-12 until appropriate actions are taken to remove the said defects. He also cited the decision of this Tribunal rendered in the case of M/s. Tribhovandas Bhimji Zaveri v. Collector of Central Excise, New Delhi Order No. A/378/86-NRB, dated 30.7.1986 to show that no action can be taken on the basis of the alleged shortage said to have been worked out on the basis of the balances shown in the defective GS-11 and GS-12 forms.
6. In reply, Smt. Nisha Chaturvedi, learned SDR for the respondent while admitting that in the show cause notice the appellant firm was not charged for contravening the provisions of the Gold (Control) Act and also was not asked to show cause as to why the penalty be not imposed, still the fact remains that the appellant firm participated in the adjudication proceedings. On merits, she supported the findings recorded in the impugned order.
7. Before we proceed to consider the arguments so advanced by the parties we may mention at the outset that show cause notices were issued to all the partners of the appellant firm, but the learned Collector has not imposed any penalty on any of the partners. The Department has also not filed any Cross-Objections. Hence we are not concerned with the individual partners of the appellant firm.
8. Now adverting to the arguments advanced by the parties we are of the opinion that the contention of the appellant that no show cause notice was issued to them and alternatively that no allegation regarding the alleged contravention of Sections 71 or 74 was made against the appellant firm in the show cause notice and that no penalty was proposed in the show cause notice against the firm must be given an effect to. Section 79 of the Gold (Control) Act, 1968 provides for giving of an opportunity to the owner or other person concerned before the goods are confiscated or penalty is imposed. Section 79 so far as relevant for the purpose of this appeal reads as follows :-
"79. Giving of an opportunity to the owner of gold, etc. No order of adjudication of confiscation or penalty shall be made unless the owner of the gold, conveyance, or animal or other person concerned is given a notice in writing -
(i) informing him of the grounds on which it is proposed to confiscate such gold, conveyance or animal or to impose a penalty; and
(ii) giving him a reasonable opportunity of making a representation in writing within such reasonable time as may be specified in the notice against the confiscation or imposition of penalty mentioned therein and, if he so desires, of being heard, in the matter:"
xx xx xx xx From a plain reading of the said Section it is clear that no order of adjudication on confiscation or penalty shall be made unless the owner or other person concerned is given a notice in writing, -
(i) informing of the grounds on which it is proposed to confiscate the goods or to impose a penalty; and
(ii) giving him a reasonable opportunity of making a representation against the proposed confiscation or imposition of penalty mentioned therein.
From the show cause notice on record it is clear :-
(a) that no allegation regarding the contravention of any provision of the Gold (Control) Act was made against the appellant firm;
(b) that no penalty was proposed in the Show Cause Notice against the firm; and
(c) that the appellant firm was never asked to show cause.
9. Under the aforesaid circumstances in our considered opinion the imposition of penalty on the appellant firm or finding the firm guilty is without jurisdiction and illegal. The fact that a copy of the show cause notice was also sent to the appellant firm does not improve the case of the Department because merely sending a copy of the show cause notice to a person without making any allegation against him or without proposing any penalty on him is of no consequence. For this opposition of law the case of Shri Chandrakant B. Shah v. Collector of Customs, 1987 (12) ECR 779 applies on all fours. In that case show cause notice was addressed to the partnership firm namely, M/s. Parimal Jewellers, Gujarat. In the address partners of M/s. Parimal Jewellers were mentioned. But it was only the firm which was asked to show cause against the various contraventions as alleged in the show cause notice. No partners of the said firm was asked to show cause against any alleged contravention of the Gold (Control) Act. However, the Adjudicating Authority levied a certain penalty on one of the partners of the said firm Shri C.B. Shah under Section 7H of the Gold (Control) Act. Setting aside the penalty imposed on the said partner Shri C.B. Shah, this Tribunal held as follows:-
"14. In so far as the Collector's order of levy of penalty of Rs. 5000/- on Shri C.B. Shah is concerned, it is seen that the same had been levied without the issue of show cause notice to Shri C.B. Shah. The name of Shri Shah was just mentioned among the names of the partners in the show cause notice issued to M/s. Parimal Jewellers. But Shri C.B. Shah has not been called upon to show cause against any alleged contravention of the Gold (Control) Act. In view of this fact, we cannot accept the explanation of the learned Senior Departmental Representative that adequate opportunity was given to Shri C.B. Shah for showing cause. Since principles of natural justice had not been complied with, we find that the Collector's order of levy of penalty of Rs. 5,000/- on Shri Shah is bad and accordingly we set aside the same."
(Emphasis supplied)
10. The contention of the learned SDR that the appellant firm filed the reply to the show cause notice and participated in the proceedings also does not improve the case of the Department because a show cause notice in terms of Section 79 of the Gold (Control) Act to the person concerned before making any order of adjudication is mandatory. The fact that even when no show cause notice was issued, the appellant firm appeared and participated in the proceedings can be of little consequence in the peculiar facts and circumstances of the instant case. In the instant case, as stated-above, no allegation against the appellant firm regarding the contravention of the Gold (Control) Act was made in the show cause notice. The firm was also not asked to show cause against any alleged contravention of the Gold (Control) Act. Even no penalty was proposed against the appellant firm. The appellant firm was also not asked to show cause against any proposed penalty. In nutshell, show cause notice to the person concerned before making any order of adjudication of confiscation or penalty is mandatory and the order of adjudication passed without such show cause notice is illegal. The fact that the person concerned appeared or participated in the adjudication proceedings had not the effect of curing the initial defect. In the case of Man Mohan Lal v. Board of Revenue (M.P. 416 of 1962) decided on 8.4.1963 reported in 1964, Revenue Nirnaya, a Division Bench of the Madhya Pradesh High Court while interpreting Section 146 of the Madhya Pradesh Land Revenue Code 1959 held that the issue of a notice of demand to the defaulter before issuance of a coercing process is mandatory and that the sale held without such notice is rendered illegal. It was also held that the fact that the defaulter appeared or participated in the proceedings had not the effect of curing the initial defect. The same High Court reiterated the same view in the case of Prem Chand v. Board of Revenue, 1964, Revenue Nirnaya 311 and Shriram v. Collector, 1967, Revenue Nirnaya, 142. Before we part with this question we may incidentally mention that it appears to us that failure to allege any contravention of the Gold (Control) Act against the firm or to propose any penalty on the appellant firm or to issue any show cause notice to the appellant firm was not an accidental omission but it appears to be an intentional one because in the case of Tarak Nath Sen v. Union of India, AIR 1975 Cal. 337, it was held that a partnership is not a person within the meaning of Section 3(42) of the General Clauses Act. The rights and obligations of a firm are really rights and obligations of individual partners of the firm. Since the firm is not a legal entity and Section 140 of the Customs Act is inapplicable to the adjudication proceedings, imposition of penalties also upon the firm would, in fact, be imposition of double punishment on the partners on the same set of facts and this ratio would also apply to the case under the Gold (Control) Act. Be that it may we are not called upon to decide as to whether both the firm and parties can be penalised or not and the fact remains that no penalty on the appellant firm was ever proposed in the Show Cause Notice and therefore, the participation of the appellant firm in adjudication proceedings was of no consequence as there was nothing to defend in the absence of any intention to levy any penalty on the firm in the Show Cause Notice.
11. It also deserves to be mentioned here that a show cause notice is not an empty formality. In terms of Section 79 of the Gold (Control) Act, as reproduced above, it was the duty of the Adjudicating Authority to propose the penalty and to inform the appellant firm of the grounds on which the penalty is proposed and then to give the appellant firm a reasonable opportunity of making a representation in writing against the proposed imposition of penalty. But in the instant case all these mandatory requirements were not fulfilled.
12. Since we have agreed that no show cause notice in terms of Section 79 of the Gold (Control) Act was given to the appellant firm we do not think it necessary to deal with the other arguments of the learned counsel for the appellant on merits.
13. In the result, the appeal is allowed. Penalty imposed upon the appellant firm is set aside. The amount of penalty, if paid, be returned to the appellants forthwith.