Gujarat High Court
Diwan Brothers vs Union Of India on 2 July, 2014
Bench: M.R. Shah, K.J.Thaker
C/SCA/13930/2011 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 13930 of 2011
For Approval and Signature:
HONOURABLE MR.JUSTICE M.R. SHAH Sd/
and
HONOURABLE MR.JUSTICE K.J.THAKER Sd/
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1. Whether Reporters of Local Papers may be allowed to see No
the judgment ?
2. To be referred to the Reporter or not ? No
3. Whether their Lordships wish to see the fair copy of the No
judgment ?
4. Whether this case involves a substantial question of law as to No
the interpretation of the constitution of India, 1950 or any
order made thereunder ?
5. Whether it is to be circulated to the civil judge ? No
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DIWAN BROTHERS,A PROPREITARY FIRM OF SANJAY D JAIN....Petitioner(s)
Versus
UNION OF INDIA, THRO THE JOINT SECRETARY & 1....Respondent(s)
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Appearance:
MR PARESH M DAVE, ADVOCATE for the Petitioner(s) No. 1
MR HRIDAY BUCH, ADVOCATE for the Respondent(s) No. 1
MR RJ OZA, ADVOCATE for the Respondent(s) No. 2
MR.VARUN K.PATEL, ADVOCATE for the Respondent(s) No. 2
RULE SERVED for the Respondent(s) No. 2
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CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE K.J.THAKER
Date : 02/07/2014
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] By way of this petition under Article 226/227 of the Constitution of India, petitioner has prayed for an appropriate writ, direction and Page 1 of 14 C/SCA/13930/2011 JUDGMENT order quashing and setting aside the impugned order No.266/11CX dated 23.03.2011 passed by the Joint Secretary - Government of India by which the Revisional Authority confirmed the Order in Appeal passed by the Commissioner of Central Excise and Customs (Appeals), Surat1 disallowing the rebate claim of Rs.30,43,944/ claimed by the petitioner on the goods exported by the petitioner as merchant exporter for which according to the petitioner, petitioner applied with all necessary requirements as required under Rule 18 of the Central Excise Rules, 2002 (hereinafter referred to as "Rules, 2002").
[2.0] Facts leading to the present Special Civil Application in nutshell are as under:
[2.1] That the petitioner who was exporter cum manufacturer filed rebate claims of Rs.30,43,944/ for the goods i.e. MMF(P) exported by them on payment of central excise duty, exported under different invoices and by submitting the ARE1s etc. [2.2] While scrutinizing the said rebate claim and on the basis of the documents filed by the petitioner and on verification of duty payment it was found by the department that the petitioner has purchased the exported goods from M/s. Universal Textiles, Surat and the said goods were processed by one M/s. Mamta Silk Mills Pvt. Ltd., Surat. On further inquiry it was found by the Department that the entire transactions were fake and as such they were only billing transactions only with a view to get the CENVAT credit as well as the rebate and therefore, the petitioner was served with the showcause notice dated 16.03.2006 by which the petitioner was called upon to show cause as to why the rebate claim of Rs.30,43,944/ filed against ARE1s mentioned in the table should not be rejected under Rule 18 of the Rules, 2002 read with section 11BB of the Central Excise Act, 1944 (hereinafter referred to as "Act"). That by the said showcause notice, M/s. Universal Textiles from whom the Page 2 of 14 C/SCA/13930/2011 JUDGMENT petitioner is alleged to have to have purchased the goods / raw material was called upon to show cause as to why the penalty should not be imposed upon them under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11 AC of the Act as well as under Rule 25 of the Rules, 2002. That in the said showcause notice in paras 4 and 5, it was stated as under:
"4. A large scale scam was unearthed in SuratI Commissionerate regarding fraudulent rebate claims where the exporters have submitted bogus shipping bills, ARE1 and other documents. During the investigation of fraudulent rebate claim cases another major modus operandi has also been detected and it has been noticed that number of persons who had obtained the registrations as manufacturers had issued hundreds of Central Excise duty paying invoices, without any movement of goods and infact no goods were sold by them. Based on such bogus duty paying documents, number of parties have claimed Cenvat Credit and part of which had found its way in rebate claims also. Considering a huge revenue involvement running in to Crores of rupees due to issue of fake/bogus excise invoices it was felt necessary that before sanctioning rebate claims inquiry should be made regarding genuineness of the manufacturer and the input invoices on which Cenvat Credit has been availed and duty paid.
5. On scrutiny of ER1 returns submitted by M/s. Mamta Silk Mills Pvt. Ltd., Plot No.43/A, Kadodara, Vareli, TalPalsana, Dist Surat by the jurisdictional Range Officer, it was observed by the Range Superintendent that a quantity of 1055288.00 L. Mtrs. of grey fabrics was shown to be received by the unit from M/s. Universal Textiles, 1008, Raghukul Textile Market, Ring Road, Surat (under the invoices issued by M/s. Delta Blues) on 04.07.2004 for processing on job work basis. The said grey fabrics was shown to be cleared to M/s. Universal Textile after processing on 07.07.2004 and 08.07.2004. Hence, a doubt was raised by the Range Superintendent that a such a large quantity can not be processed in the unit during the said short period as the average daily production of the unit is 35000.00 L Mtrs to 45000.00 L. Mtrs per day."
In response to the said showcause notice, the petitioner submitted the reply dated 06.04.2007 by submitting that as such the goods have been physically exported out of India and that the petitioner has paid the amount of duty and proper documents for claiming the rebate claims are also filed. It was submitted that therefore the petitioner is entitled to the Page 3 of 14 C/SCA/13930/2011 JUDGMENT rebate of duty on the goods actually and physically exported.
[2.3] That the Assistant Commissioner of Central Excise and Customs, Surat adjudicated the said showcause notice and passed the OIO on 22.06.2007 rejecting the rebate claim submitted by the petitioner by observing that there were only paper transactions between M/s. Universal Textiles and M/s. Mamta Silk Mills Pvt. Ltd. and between the petitioner and M/s. Universal Textiles and the same was only billing activities for getting the benefit of CENVAT Credits as well as the rebate.
[2.4] That feeling aggrieved and dissatisfied with the Order in Original passed by the Assistant Commissioner, Central Excise, Surat rejecting the rebate claim of Rs.30,43,944/ filed by the petitioner under Rule 18 of the Rules, 2002 in respect of the respective 12 ARE1s, the petitioner preferred appeal before the Commissioner (Appeals) and vide Order in Appeal dated 05.02.2009, the Commissioner (Appeals) dismissed the said appeal.
[2.5] Feeling aggrieved and dissatisfied with the order passed by the learned Commissioner (Appeals) in rejecting the appeal and confirming the OIA rejecting the rebate claim of Rs.30,43,944/ filed by the claimant, the petitioner preferred Revision Application before the Central Government and the Revisional Authority - Joint Secretary, Government of India had dismissed the said revision application confirming the orders passed by both the authorities below rejecting the claims of the petitioner of Rs.30,43,944/.
[2.6] Feeling aggrieved and dissatisfied with the impugned orders passed by the Revisional Authority, Commissioner (Appeals) and the OIO rejecting the claim of Rs.30,43,944/ submitted by the petitioner, the petitioner has preferred the present Special Civil Application under Article 226/227 of the Constitution of India.
Page 4 of 14C/SCA/13930/2011 JUDGMENT [3.0] Shri Paresh Dave, learned advocate appearing on behalf of the petitioner has vehemently submitted that all the authorities below have materially erred in rejecting the rebate claim of the petitioner of Rs.30,43,944/ filed by the petitioner in respect of the 12 ARE1s. It is submitted that as such the petitioner had complied with all the requirements under the law more particularly under Rule 18 of the Rules, 2002 with respect to its rebate claims of Rs.30,43,944/. It is submitted that as the petitioner filed the necessary documents along with the respective ARE1s with full particulars and complied with all the requirements which were required to be complied with under Rule 18 of the Rules, 2002, the authorities below have erred in rejecting the rebate claims of the petitioner.
[3.1] It is further submitted by Shri Dave, learned advocate appearing on behalf of the petitioner that as such the petitioner did physically exported the goods out of India on payment of duty and infact submitted the proper documents for claiming rebate claims and when the documents of export have not been doubted and/or not found to be forged and fake, the petitioner is entitled to the rebate as claimed on the goods actually and physically exported out of India and on which the duty was paid by the petitioner.
[3.2] It is further submitted by Shri Dave, learned advocate appearing on behalf of the petitioner that as such the petitioner purchased the goods/processed fabrics from one M/s. Universal Textiles. It is submitted that as such the said M/s. Universal Textiles purchased the unprocessed fabrics from one M/s. Delta Blues and thereafter send the said unprocessed fabrics to one M/s. Mamta Silk Mills Pvt. Ltd. for processing and thereafter the said processed goods/fabrics were returned to M/s. Universal Textiles who in turn sold the processed fabrics to the petitioner. It is submitted that as such M/s. Universal Textiles from whom the petitioner purchased the processed fabrics which came to be Page 5 of 14 C/SCA/13930/2011 JUDGMENT exported by the petitioner was at no point of time declared as a fake company. It is submitted that therefore and in such a situation denial of the rebate claim is not justified, which deserves to be quashed and set aside.
[3.3] It is further submitted by Shri Dave, learned advocate appearing on behalf of the petitioner that as such subsequently the proceedings were initiated against M/s. Mamta Silk Mills Pvt. Ltd. with respect to the very goods on which M/s. Mamta Silk Mills Pvt. Ltd. claimed the CENVAT Credit and the order came to be passed by the adjudicating authority reversing the CENVAT Credit availed by the said M/s. Mamta Silk Mills Pvt. Ltd. and therefore, when the said M/s. Mamta Silk Mills Pvt. Ltd. was directed to pay the duty on the same goods, the petitioner shall be entitled to the rebate claim of the said duty.
[3.4] It is further submitted by Shri Dave, learned advocate appearing on behalf of the petitioner that as such the petitioner purchased the inputs/goods from M/s. Universal Textiles which was not found to be nonexistent and thereafter actually and physically exported the goods on payment of duty and therefore, the petitioner shall be entitled to the rebate of duty paid on the goods which came to be exported by the petitioner. It is submitted that merely because the supplier from whom M/s. Universal Textiles purchased the raw material / input was found to be nonexistent and/or indulged into any malpractice, the petitioner who had actually and physically exported the goods on payment of the duty may not be denied the rebate. It is submitted that in the present case as such M/s. Universal Textiles was never declared as fake supplier. It is submitted that therefore the petitioner shall be entitled to the rebate as claimed. In support of his above submissions, Shri Dave, learned advocate appearing on behalf of the petitioner has heavily relied upon the decision of the Division Bench of this Court in the case of Commissioner of C.Ex. & Customs v. D.P. Singh reported in 2011(270) Page 6 of 14 C/SCA/13930/2011 JUDGMENT E.L.T. 321 (Guj.) Making above submissions and relying upon the above decision it is requested to allow the present special civil application and direct the respondents to pay / grant the rebate of Rs.30,43,944/ with interest thereon under Section 11BB of the Act.
[4.0] Present petition is opposed by Shri R.J. Oza, learned Counsel appearing on behalf of the Department. It is submitted that in the present case as such there are concurrent findings of facts by all the authorities below that infact there was no physical movement of the goods/inputs and the transactions between the petitioner and the supplier - M/s. Universal Textiles were fake transactions. It is submitted that there are concurrent findings of facts by all the authorities below that the transactions between the petitioner and M/s. Universal Textiles (Supplier) were only billing activities for the purpose of availing CENVAT Credit as well as the rebate. It is submitted that it has been found by all the authorities below that the transactions between M/s. Delta Blues (Supplier of unprocessed fabrics to M/s. Universal Textiles from whom the petitioner is alleged to have purchased the input / raw materials) and the transactions between M/s. Universal Textiles (Supplier) and the petitioner are found to be fake transactions. It is submitted that therefore in the facts and circumstances of the case, when it has been found that the transactions between M/s. Universal Textiles (Supplier) and the petitioner were sham being mere paper transactions and it was only billing activities, the petitioner is rightly denied the rebate claim.
[4.1] It is submitted that so far as the contention on behalf of the petitioner that M/s. Universal Textiles procured the processed textiles under invoices of M/s. Mamta Silk Mills Pvt. Ltd. and the processor and that M/s. Mamta Silk Mills Pvt. Ltd. has paid the duty demanded by the department on account of the wrong credit availed by the said processor Page 7 of 14 C/SCA/13930/2011 JUDGMENT on invoices issued by fictitious / unknown persons and therefore, now the duty has been paid by the said M/s. Mamta Silk Mills Pvt. Ltd. the petitioner shall be entitled to rebate claim is concerned, it is submitted that on the aforesaid, the petitioner shall not be entitled to the rebate. It is submitted that as such the petitioner has failed to prove that as such the duty alleged to have been paid by M/s. Mamta Silk Mills Pvt. Ltd. was with respect to the very goods which were supplied to the petitioner by M/s. Universal Textiles. It is submitted that therefore unless and until the same is established by the petitioner, the petitioner shall not be entitled to the rebate on the aforesaid. It is further submitted by Shri Oza, learned Counsel appearing on behalf of the Department that even otherwise and as such against the order passed by the adjudicating authority reversing the CENVAT credit availed by it and the duty demanded is concerned, the said M/s. Mamta Silk Mills Pvt. Ltd. challenged the same before the learned Tribunal and before this Court and as such the said M/s. Mamta Silk Mills Pvt. Ltd. has claimed the refund. It is submitted that in any case when the petitioner has failed to establish and prove that the aforesaid duty paid by M/s. Mamta Silk Mills Pvt. Ltd. was with respect to the very goods which came to be supplied to the petitioner by M/s. Universal Textiles, the petitioner cannot be permitted to take benefit of the same. It is submitted that the aforesaid aspect has been dealt with and considered by the Commissioner (Appeals) as well as the Revisional Authority in detail. It is submitted that therefore on the aforesaid ground the petitioner is not entitled to the rebate claim.
[4.2] Now, so far as the reliance placed upon the decision of the Division Bench of this Court in the case of D.P. Singh (Supra) by the learned advocate appearing on behalf of the petitioner in support of his submission that as the petitioner had purchased the goods/raw material / inputs from M/s. Universal Textiles and M/s. Universal Textiles was not declared fake supplier and as M/s. Universal Textiles Page 8 of 14 C/SCA/13930/2011 JUDGMENT purchased the said goods from M/s. Delta Blues and therefore, the petitioner can be said to be bonafide purchasers who actually and physically exported the goods on payment of duty is concerned, it is submitted that as such the said decision shall not be applicable to the facts of the case on hand. It is submitted that in the present case even there are concurrent findings of fact by all the authorities below that infact the transaction between the petitioner and M/s. Universal Textiles (Supplier) are found to be fake transactions and only billing activities for the purpose of availing CENVAT Credit and the rebate. It is submitted that therefore when even the petitioner has failed to satisfy the actual movement of goods from M/s. Universal Textiles to the petitioner and the transactions between M/s. Universal Textiles and the petitioner are found to be fake, the petitioner is rightly denied the rebate claim. It is further submitted that as such in the case of very petitioner with respect to other similar transactions, it was found that the very petitioner had indulged into the similar activities of fake transactions and billing activities for the purpose of getting the benefit of the CENVAT Credit and the rebate claim and the petitioner came to be denied the rebate claim which has been confirmed upto this Court. It is submitted that therefore as such the petitioner is found to have been indulged into similar activities of fake transactions only for the purpose of billing activities and getting the benefit of CENVAT Credit / rebate claim.
Making above submissions, it is requested to dismiss the present special civil application.
[5.0] Heard learned advocate appearing on behalf of respective parties at length. Considered and perused the impugned orders passed by the Original Adjudicating Authority, the Commissioner (Appeals) and the Revisional Authority.
At the outset it is required to be noted that petitioner submitted the rebate claim of Rs.30,43,944/ on the goods exported by them under the ARE1s, the particulars of which are mentioned in the showcause Page 9 of 14 C/SCA/13930/2011 JUDGMENT notice at AnnexureA. The same have been denied by all the authorities below by observing that as such the transactions between the petitioner and its supplier were fake transactions and there was no actual and physical movements of the goods and the petitioner and the supplier indulged into the billing activities only for the purpose of taking benefit of CENVAT Credit and rebate. Therefore, as such there are concurrent findings of fact by all the authorities below with respect to the fake transactions between the petitioner and M/s. Universal Textiles (supplier). At this stage it is required to be noted that according to the petitioner M/s. Universal Textiles (its supplier) purchased the unprocessed fabrics from one M/s. Delta Blues. That thereafter M/s. Universal Textiles send the said goods to M/s. Mamta Silk Mills Pvt. Ltd. for the purpose of processing and for job work. That thereafter M/s. Mamta Silk Mills Pvt. Ltd. job worker returned the said goods to M/s. Universal Textiles and thereafter M/s. Universal Textiles supplied the processed fabrics / input / goods to the petitioner. It is the case on behalf of the petitioner that when the petitioner has as such the exported goods on payment of duty the petitioner shall be entitled to the rebate. However, it is required to be noted that unless and until it is established and proved by the petitioner that the petitioner exported the goods by using the inputs on which excise duty / duty was paid then and then only the petitioner shall be entitled to the rebate. In the present case as observed herein above, it has been found and established that the transactions between M/s. Universal Textiles and M/s. Mamta Silk Mills Pvt. Ltd. and thereafter between M/s. Universal Textiles (supplier) and the petitioner were fake transactions. No evidence has been produced to establish and prove the actual physical movement of goods from M/s. Delta Blues to M/s. Universal Textiles and thereafter M/s. Universal Textiles to M/s. Mamta Silk Mills Pvt. Ltd. and thereafter from M/s. Mamta Silk Mills Pvt. Ltd. to M/s. Universal Textiles and thereafter from M/s. Universal Textiles to the petitioner. At this stage some findings Page 10 of 14 C/SCA/13930/2011 JUDGMENT recorded by the adjudicating authority which reads as under are required to be referred to.
"Hence, I find that there is only paper transaction between M/s. Universal Textiles, Mamta Silk Mills Pvt. Ltd. and the claimant there is no any physical movement of goods viz. grey fabrics or processed Man Made Fabrics amongst them. M/s. Mamta Silk Mills Pvt. Ltd., Surat, M/s. Universal Textiles and the Claimant has wrongly & fraudulently availed CENVAT Credit of Rs.58,07,084.00 by showing receipt of 10,55,288.00 L Mtrs of grey fabrics/finished fabric without physically receiving the said fabrics with an intention to facilitate the Claimant to encash it by way of rebate claims.
I also find that the duty paid on finished goods will not serve the purpose for admissibility of rebate because the claimant may have exported the goods, but they have not exported the goods claimed to be cleared under the above ARE1's and duty paying invoices and may have exported some other goods procured by them from nonduty paying units or nonduty paid goods.
The said fact of paper transaction is further corroborated from the statements of various persons recorded during the investigation of case booked against M/s. Mamta Silk Mills Pvt. Ltd., Surat. The investigation was further extended to the M/s. Delta Blues, 206, Subhlaxmi Market, Ring Road, Surat, supplier of the goods to M/s. Universal Textiles, Surat, wherein a statement of Shri Ravi Malapani, Director of M/s. Salasar Balaji Estate Ltd., (owner of the Market) was recorded on 22/03/2005, wherein he, interalia, stated that the said shop i.e. 206, Subhlaxmi Market, Ring Road, Surat was in their possession since the construction of the building and was sold during October 2004 to Shri Satish Kumar Khandelwal. The said fact was already confirmed by Shri Satish Kumar Khandelwal in his statement dated 18.03.2005. Further, during the course of the said investigation it reveals from the verification of returns submitted by M/s. Delta Blues that most of the goods were procured by them from M/s. Omkar Textiles, 1401, Kohinoor Textiles Market, Ring Road, Surat. This premises was also searched on 01/04/2005 and the person running business in the shop, during the course of Panchnama informed that the shop was taken by him on rental basis for almost last three years and no business in the name of M/s. Omkar Textiles, was carried out by them as also no one was allowed to carry out the business in this name from the said shop.Page 11 of 14
C/SCA/13930/2011 JUDGMENT The learned Commissioner (Appeals) has confirmed the aforesaid finding. The Revisional Authority has also confirmed the above. Under the circumstances when the petitioner failed to prove the actual movement of goods from M/s. Universal Textiles to it and/or that the petitioner used the inputs/goods on which the duty was paid, the petitioner shall not be entitled to the rebate of excise duty despite the fact that the petitioner has exported the goods on payment of duty. As rightly observed by the Commissioner (Appeals), rebate of excise duty is allowed on duty of goods manufactured and exported, only such duty which is paid on goods cleared from the factory and when such goods are exported. As such the same arguments were made by the very petitioner at the time of deciding Special Civil Application No.13931/2011 and it was submitted that as the petitioner had exported the goods and therefore, the petitioner's rebate claim cannot be denied. At that stage also the petitioner heavily relied upon the decision of this Court in the case of D.P. Singh (Supra). While not accepting the said submission and while denying the rebate claim even on the actually exported goods, the Division Bench has observed as under:
"Basically the issue is whether the petitioner had purchased the inputs which were duty paid. It may be true that the petitioner manufactured the finished goods and exported the same. However, that by itself would not be sufficient to entitle the petitioner to the rebate claim. In the present case, when the authorities found inputs utilized by the petitioner for manufacturing export products were not duty paid, the entire basis for seeking rebate would fall. In this case, particularly when it was found that several suppliers who claimed to have supplied the goods to the petitioner were either fake, bogus or nonexistent, the petitioner cannot be claimed rebate merely on the strength of exports made."
In the present case also, there are concurrent findings of fact given by all the authorities below with respect to the fake transactions between the petitioner and M/s. Universal Textiles, we are of the opinion that all the authorities have examined the case in detail and as such no interference is called for. The conclusions arrived at by the Page 12 of 14 C/SCA/13930/2011 JUDGMENT authorities below are on the basis of evidence on record and such conclusions are not pointed out to be perverse. Under the circumstances, as such no interference in exercise of powers under Articles 226 & 227 of the Constitution of India, therefore, can be made.
[5.1] Now, so far as the reliance placed upon the decision of the Division Bench of this Court in the case of D.P. Singh (Supra) is concerned, the said decision shall not be applicable to the facts of the case on hand. It is required to be noted that in the present case even the transactions between the petitioner and M/s. Universal Textiles (Supra) are found to be fake transactions. Merely because M/s. Universal Textiles was not declared as fake company / supplier, it makes no difference. As such there is a distinction between the fake transaction and the fake company. When the transactions between the petitioner and the supplier were found to be fake transactions and it was found that the petitioner has failed to establish and prove that the petitioner used the inputs / goods in manufacturing of even the goods which came to be exported on which the actual excise duty or paid, the petitioner shall not be entitled to the rebate of the duty, which is not proved to be paid. Our aforesaid view is supported by the decision of the Division Bench of this Court in the case of Multiple Exports Pvt. Ltd. v. Union of India reported in 2013 (288) ELT 331 (Guj.).
[5.2] Now, so far as the contention on behalf of the petitioner that as such M/s. Mamta Silk Mills Pvt. Ltd. paid the duty demanded by the department on account of wrong credit availed by the processor and invoices issued by fictitious/unknown persons and therefore, the petitioner shall be entitled to the rebate of the said duty paid by M/s. Mamta Silk Mills Pvt. Ltd. is concerned, it is required to be noted that as such it is not proved that M/s. Mamta Silk Mills Pvt. Ltd. paid the duty on the very goods which came to be supplied by M/s. Universal Textiles to the petitioner. Under the circumstances, unless and until the same is Page 13 of 14 C/SCA/13930/2011 JUDGMENT established the case of the petitioner cannot be considered. In the present case as such it is found that the transactions between the petitioner and its supplier (M/s. Universal Textiles) were found to be fake. Even otherwise it is required to be noted that as such it is pointed out that M/s. Mamta Silk Mills Pvt. Ltd. has demanded the refund of the said duty in view of the subsequent proceedings initiated by it. Under the circumstances, on the aforesaid ground, the petitioner shall not be entitled to the rebate claim.
[6.0] In view of the above and for the reasons stated above, present Special Civil Application fails and the same deserves to be dismissed and is, accordingly, dismissed. Rule is discharged. In the facts and circumstances of the case, there shall be no order as to costs.
Sd/ (M.R. SHAH, J.) Sd/ (K.J. THAKER, J.) Ajay Page 14 of 14