Gauhati High Court
M/S Dharampal Satyapal Ltd vs The Union Of India & 2 Ors on 22 June, 2017
Author: Arup Kumar Goswami
Bench: Arup Kumar Goswami
1
IN THE GAUHATI HIGH COURT
(HIGH COURT OF ASSAM, NAGALAND, MIZORAM & ARUNACHAL PRADESH)
WP(C) 6065/2016
M/s Dharampal Satyapal Limited, Shed No. OS/6/L/44 & OS/7/R/47,
59, Industrial Estate, Bamunimaidam, Guwahati-781021, a Company
incorporated under the provisions of the Companies Act, 1956 and
having its Registered Office at 1711, S.P. Mukherjee Marg, Delhi-
110006, represented by Mr. Shantanu Sarma, Deputy General
Manager of the Petitioner Company.
- Petitioner
-Versus-
1. Union of India,
Through Under-Secretary to the Government of India,
Ministry of Finance (Department of Revenue),
North Block, New Delhi.
2. The Superintendent (HQRS. Anti Evasion-I),
Office of the Commissioner of Central Excise & Service Tax, Gauhati,
HQRS Anti Evasion, Unit I, Sethi Trust Building, 6th Floor, G.S. Road,
Bhangagarh, Guwahati-781005.
3. The Assistant Commissioner (Anti Evasion),
Office of the Commissioner of Central Excise & Service Tax HQRS Anti
Evasion, Unit 1, G.S. Road, Bhangagarh, Guwahati-781005.
- Respondents
BEFORE HON'BLE MR. JUSTICE ARUP KUMAR GOSWAMI For the petitioner : Dr. A.K. Saraf, Senior Advocate, Mr. B. Dubey, Advocate.
For respondent Nos. 1 to 3 : Mr. B. Sarma, Standing Counsel,
Central Excise and Customs Department.
Dates of hearing : 20.04.2017, 26.04.2017 and 11.05.2017
Date of judgment and order : 22.06.2017
JUDGMENT & ORDER
Heard Dr. A.K. Saraf, learned senior counsel for the petitioner. Also heard Mr. B. Sarma, learned standing counsel, Central Excise and Customs Department, appearing for the respondents.
2. The petitioner, which is a Company registered under the Companies Act, 1956, by filing the instant writ petition under Article 226 of the Constitution of India, has, essentially, prayed for terminating an enquiry initiated against the petitioner by the respondent No.3, W P(C) 6065/ 2016 2 i.e. Assistant Commissioner of Central Tax (Anti-evasion), by letter dated 18.11.2015. The petitioner company has its manufacturing units in, amongst others, at Agartala and Guwahati and is engaged in manufacturing goods (Pan Masala), notified under Section 3A of the Central Excise Act, 1944 (for short, "1944 Act"). The petitioner is registered under the 1944 Act.
3. When the writ petition was moved, this Court, by an order dated 04.10.2016, while issuing notice, had stayed further proceedings pursuant to the notice dated 18.11.2015 and the Summons dated 16.09.2016. However, it was provided that it would be open to the respondents to pass order under Rule 6(2) of the Pan Masala Packing Machines (Capacity Determination and Calculation of Duty) Rules, 2008 (for short, "Rules"), as amended, as per direction of the appellate authority. For vacating the interim order dated 04.10.2016, two Interlocutory Applications, one by the Commissioner of Central Excise and Service Tax, and the other by the Assistant Commissioner of Central Excise (Anti-evasion) were filed and the said applications were registered as I.A. (Civil) No.2024/2016 and I.A. (Civil) No.2178/2016, respectively. When these two Interlocutory Applications were taken up for consideration on 16.03.2017, learned counsel for the parties had suggested that instead of taking up the same, the writ petition may be taken up for disposal as hearing of the Interlocutory Applications would take, more or less, the same amount of time which may be required for hearing of the writ petition. Acceding to the aforesaid request, the Court had proceeded to hear the writ petition at the admission stage.
4. The pleaded case of the petitioner, in brief, is as follows:
(a) In the month of January, 2014, the petitioner had acquired a packing machine [one Rotary Type Single Track Horizontal Track FFS Machine (Make: Sanko, ID:
131023840)] from Japan for manufacturing Pan Masala (without tobacco) pouches. The estimated speed of the machine mentioned in the quotation was 900-1000 pouches per minute for pouch length of 90 mm for filling 18-22 grams of Pan Masala. The purchase order was placed on the basis of the said quotation. However, because of certain technical issues the petitioner was advised by the manufacturer, Sanko Machinery Company Ltd., to operate the machine at its optimum speed of around 750 pouches per minute and see the results before the machine is operated at its packing speed between 900-1000 pouches per minute. The machine was placed at the shed of the petitioner at Industrial Estate, Bamunimaidam, Guwahati.
(b) By a letter dated 09.01.2014, addressed to the Assistant Commissioner, Central Excise, the petitioner informed that it would be operating the machine with effect from W P(C) 6065/ 2016 3 18.01.2014 for packing Pan Masala in 20 gm. pouch (Retail price Rs. 40/- per pouch) and requested to depute an officer to de-seal the machine. Rule 6 of the Rules having provided for a declaration to be filed by the manufacturer of notified goods as defined under the Rules, the petitioner enclosed thereto the first declaration in Form-1 under the Rules for the machine in question. In the said declaration, the maximum packing speed of the machine was declared as 750 pouches per minute. By a letter dated 17.01.2014, the Assistant Commissioner, Central Excise, approved the declaration and fixed the packing capacity and rate of duty in terms of Rule 5 of the Rules read with Notification No. 42/2008-CE dated 01.07.2008, as amended by Notification No. 13/2012-CE dated 17.03.2012. Number of pouches deemed to be produced per month and annual production capacity (in number of pouches) were, accordingly, noted as 50,54,400 and 6,06,52,800, respectively, in terms of Rule 5. Rate of duty was fixed at Rs. 502.36 lakhs per month in terms of Notification No. 13/2012-CE dated 17.03.2014. Similar declarations were made and consequently approved till June, 2014.
(c) However, as the petitioner decided to operate the machine at a higher speed on an experimental basis, by a letter dated 18.07.2014, it filed a declaration indicating that the machine would be operated for manufacturing of Rajanigandha Pan Masala of 18 gms (plus 10% extra) pouch (RSP: Rs. 50/- per pouch) with maximum packing speed of 1000 pouches per minute. The declaration was approved by the Assistant Commissioner of Central Excise by an order dated 23.07.2014. Subsequently also the petitioner filed declarations declaring the maximum packing speed of the machine as 1000 pouches per minute and the same were also approved.
(d) At that point of time, factor relevant to production under Rule 4 of the Rules was the number of packing machines in the factory of the manufacturer and a Table laid out under Rule 5 provided for the quantity that is deemed to be produced, which was on the basis of retail price of the pouches manufactured.
(e) However, with the issuance of Notification No.6/2015-Central Excise dated 01.03.2015, brought into effect from 01.03.2015 amending the Notification dated 01.07.2008, there was a change in the method of determination of duty payable by a manufacturing unit. Section 4 was amended to read that the factors relevant to the production of notified goods shall be the number of packing machines in the factory of the manufacturer and the maximum packing speed at which such packing machines can be operated for packing of notified goods of various retail sale prices. The maximum packing W P(C) 6065/ 2016 4 speed of the machine was laid down in three different slabs, i.e. (i) up to 300 pouches per minute, (ii) 301-750 pouches per minute and (iii) 751 pouches per minute and above.
(f) The petitioner had continued to declare the maximum packing speed of the machine in the higher slab of 751 pouches per minute and above and was, accordingly, assessed to the highest rate of duty under the amended Rules. However, as complaints were received in respect of the packing of the pouches, the petitioner sent an e-mail dated 24.04.2015 to Sanko Machinery Co. Ltd. informing it about the problems encountered and requesting necessary rectification. Sanko Machinery Co. Ltd. responded by an e-mail dated 30.04.2015 stating that the machine was not capable of running at a packing speed of 1000 pouches per minute and that it would run smoothly at the packing speed of 740-750 pouches per minute.
(g) On 13.05.2015, the petitioner informed the Deputy Commissioner, Central Excise, that it will be operating the machine from 19.05.2015 for manufacturing Rajanigandha Pan Masala of 18 gm. pouch (RSP Rs.50/-) and, accordingly, requested to depute an officer on 19.05.2015 to de-seal the machine at 00:05 hours and to uninstall and seal the machine on 31.05.2015 at 23:55 hours. Declaration in Form-1 was also submitted indicating maximum packing speed above 751 pouches per minute. The Assistant Commissioner of Central Excise, vide his order dated 18.05.2015, approved the declaration and allowed de-sealing and sealing of the machine as requested. Annual capacity of production was also accordingly determined.
(h) On 26.05.2015, the petitioner wrote a letter to the Assistant Commissioner, Central Excise, informing that due to receipt of customer complaints, it had decided to discontinue its operation and, therefore, requested to depute an officer on 29.05.2015 at 23:55 hours to uninstall and seal the said machine. It was also informed that it would also use the machine for manufacturing limited quantity of Rajanigandha Pan Masala of 10 gm. pouch (RSP: Rs.25/-) to explore effectiveness of the machine. A declaration form was also submitted showing maximum packing speed above 751 pouches per minute. The Assistant Commissioner approved the said declaration by an order dated 29.05.2015 and allowed proposed manufacturing of the product at RSP: Rs.25/-.
(i) On 12.06.2015, the petitioner wrote a letter to the Assistant Commissioner of Central Excise informing that the manufacturer had communicated that the high end CPU of the machine does not synchronize with the internal checks and controls of the machine and, therefore, it was decided to downgrade the CPU and, after change over, it would like to conduct a non-commercial run to find out the maximum packing speed of the machine. By W P(C) 6065/ 2016 5 the letter, it was informed that new CPU had already been imported and engineers would come for necessary alterations and the machine was expected to be ready for trial run by the evening of 15.06.2015 and, as such, conduct of non-commercial trial run was proposed on 16.06.2015, in presence of departmental officer for determining the maximum packing speed. Accordingly, request was made to depute an officer. An order was passed on 15.06.2015 by the Assistant Commissioner of Central Excise directing the Superintendent of Central Excise, Range-IIA, Guwahati Division-II, to supervise de-sealing, trial run, un- installation and sealing of the machine. Direction was also issued to destroy the pouches manufactured during trial run. One Mr. S. K. Dutta, a Government Registered Chartered Engineer, was also appointed by the Assistant Commissioner of Central Excise vide another order dated 15.06.2015 for the purpose. Trial run was conducted and it was concluded that maximum packing capacity of the machine is 730 pouches per minute for both 18 gm. and 10 gm. pouch. Based on his report, in terms of Rule 6 of the Rules, as amended, the Assistant Commissioner, vide his order dated 16.06.2015, re-determined the annual capacity of production on the basis that the maximum packing speed of the machine falls in the category of 301 to 750 pouches per minute.
(j) Till October, 2015, declarations were made by the petitioner showing maximum packing speed of the machine as determined by the order dated 16.06.2015 of the Assistant Commissioner, Central Excise, and the same were also correspondingly approved.
(k) On 18.11.2015, the respondent No.3 wrote a letter on the subject of an enquiry in relation to the machine and requiring the petitioner to submit, by 26.11.2015, the documents, namely, (i) Purchase Order, (ii) Pro-forma Invoice, (iii) Invoice, (iv) Packing List,
(v) Bill of Entry, (vi) Consignment Note/Transport Documents, (vii) Machine Literature (in original), (viii) Handbook/Manual of Operation of Machine (in original), (ix) All annexure/enclosures received (from the manufacturer/supplier) along with the machine, (x) Payment Particulars, (xi) Copies of all Form-1 Declarations since inception, relating to machine No.131023840 along with all attachments/annexure/basis thereof and (xii) All other correspondences made with the manufacturer/supplier in relation to purchase of the machine. The petitioner submitted documents as indicated in the letter dated 26.11.2015.
(l) On 23.11.2015, the petitioner had sent a letter to the Assistant Commissioner of Central Excise informing that it would restart production for two days on 29.11.2015 and 30.11.2015 and, therefore, requested deputing of an officer to de-seal and eventual uninstalling and sealing of the machine. Declaration was also made in Form-1 showing maximum packing speed of the machine as 750 pouches per minute.
W P(C) 6065/ 2016 6
(m) In reference to the said letter, the Assistant Commissioner responded by his letter dated 25.11.2015. In the said letter, declarations made by the petitioner were reproduced in the form of a tabular chart. On the basis of the declarations made, it was opined in the said letter that the maximum packing speed of the machine cannot be less than 1000 pouches per minute and that, consequently, it would fall in the category of "751 pouches per minute and above" for the purpose of assessment. By the said letter, the petitioner was requested to submit its defence to establish that the maximum packing speed of the machine is below 750 pouches per minute for the pouch weight of 18 gms. of RSP Rs.50/- on or before 27.11.2015, giving also liberty to appear in person, failing which it was indicated that assessment would be done on the basis of available records. The petitioner, vide its letter dated 27.11.2015 responded to the said letter highlighting that re- determination of packing speed was based upon a technical trial run of the machine by the then Assistant Commissioner of Central Excise with a team of his officers and a Chartered Engineer duly appointed by the department, conducted in their physical presence. Request was made to conduct a similar trial run to quell any doubt or misgivings. The Associate Vice President and the Deputy General Manager had also personally appeared on 27.11.2015.
(n) On 27.11.2015, the Assistant Commissioner passed an order holding that maximum packing speed of the machine is 751 pouches and above per minute and directing to pay duty accordingly. The declaration submitted by the petitioner on 23.11.2015 was allowed with the modification relating to maximum packing speed of the machine. On 28.11.2015, the petitioner wrote back that it would not operate the machine as proposed vide letter dated 23.11.2015 and, accordingly, withdrew the declaration filed on 23.11.2015.
(o) In relation to the enquiry undertaken, the Assistant Commissioner (A.E.) issued another letter on 04.12.2016 requiring the petitioner to furnish within 09.12.2015 the basis for declaring variant parameters in respect of "maximum packing speed (pouches/minute)"
in respect of the very same machine and the original copy of the quotation dated 18.04.2013 issued by M/s Heat and Control Pvt. Ltd. for the purpose of further investigation. The petitioner replied back by letter dated 09.12.2015 explaining the reasons and also intimating that the quotation was received through e-mail, copy of which was already furnished and that there is no original copy.
(p) Thereafter, on 14.12.2015 and 17.12.2015, summons was issued under Section 14 of 1944 Act, to Mr. Bharat Goswami, Vice President of the petitioner Company, to appear in person and to produce documents and records. A Schedule was given indicating the matters on which statements were sought for and also indicating the documents needed to W P(C) 6065/ 2016 7 be produced. Similar summons was issued to Mr. C. Roy Choudhury on 05.01.2016 with almost an identical Schedule with the addition relating to technical alterations made in the machine. Summons dated 27.01.2016, 23.03.2016 and 09.05.2016 were also issued to Mr. Shantanu Kumar Sarma (DGM, Excise), Mr. Manabendra Deb (DGM, Maintenance), Mr. S.K. Poddar (Vice-President, Legal Services), respectively, truncating the items in the Schedule.
The aforesaid officials appeared and they were made to sign statements dictated by the respondents. In the meantime, the petitioner paid a sum of Rs.1 crore on 21.12.2015, under protest, without prejudice to its rights and contentions, in connection with ongoing investigation and alleged evasion of Central Excise duty. Further sum of Rs.1 crore was paid by the petitioner on 03.06.2016.
(q) On 13.01.2016, the petitioner submitted a letter dated 12.01.2016 to the Commissioner of Central Excise and Service Tax praying for a detailed physical examination of the machine to determine the maximum packing speed of the machine as well as for withdrawal of the investigation. Furthermore, the petitioner also filed an appeal on 25.01.2016 under Section 35 of the Act before the Commissioner of Central Tax (Appeals) against the order dated 27.11.2015. Sanko Machinery Company Ltd. also sent a letter to the petitioner confirming that a FP-1000 Controller programmed at 750 bpm was supplied against purchase order dated 14.05.2015 under invoice dated 27.05.2015.
(r) A summons dated 18.07.2016 was issued to Mr. Chander Kant Sharma, Director and Key Managerial Person to appear on 26.07.2016. The Schedule of the summons is more or less an abridged version of the Schedule of the summons issued to Mr. C. Roy Choudhury. Mr. Sharma wrote back a letter dated 25.07.2016 informing that he did not have any specific responsibility pertaining to Central Excise and that the investigation may be completed on the basis of information furnished by various officers of the petitioner Company. The respondent No.2, then sent a letter dated 27.07.2016, asking him to intimate the name(s) of the Director(s) who is/are responsible to take decisions in matters pertaining to Central Excise as examination of the Director was required to complete the investigation. In response to the said letter, Mr. Sharma wrote a letter dated 08.08.2016, in substance, indicating that the Directors are responsible for determining policy and guidelines for long term business growth and in identifying new growth opportunities and that decision-making process with regard to operational issues are institutionalized and Senior Managers are authorized to make decisions and, thus, requesting closure of the investigation on the basis of records and statements furnished already.
W P(C) 6065/ 2016 8
(s) By an order dated 31.08.2016, passed by the Commissioner of Appeals, the appeal of the petitioner preferred against the order dated 27.11.2015, passed by the Assistant Commissioner, was allowed by setting aside the same and the adjudicating authority was directed to re-determine the production capacity after observing the formalities laid down in Rule 6(2) and Rule 6(6) of the Rules and to pass necessary orders accordingly.
(t) In spite of the above adjudication, the respondent No.2 again issued a summons on 16.09.2016 asking Mr. C. Roy Choudhury to appear on 26.09.2016, which he did and he continued to appear for five days till 30.09.2016. He was told that serious consequences will follow unless he did not make admissions as desired.
4. In the affidavit-in-opposition filed by the respondents on 22.12.2016, it is stated that enquiry proceeding was initiated under Section 11A of the Act against the petitioner for alleged fraudulent manipulation of the maximum operating speed of packing machine by way of change/replacement of CPU resulting in short payment of Central Excise duty to the tune of Rs.52 lakh per day, amounting to Rs.27.06 crores and that the officials who had been summoned are the officials who are directly involved in changing of machine parts, such as, "Controller" for regulating the speed of the machine or who had consented to the mis-declaration of speed of the machine, which is less than the actual operating speed of the machine, to the department. It is averred that a machine designed to run at a maximum packing speed of 1000 pouch per minute cannot be altered permanently as reversing whatever alterations were made would again enable the machine to operate at the maximum speed as per its specifications. It is pleaded that show-cause notice can be issued only after completion of the enquiry and non-appearance of one of the Directors, namely, Mr. C.K. Sharma, despite summons being issued, is one of the reasons why investigation could not be completed. The petitioner Company misled and the speed of the machine was lowered by way of fraudulent manipulation and the report of the Chartered Engineer and the circumstances under which it had been issued was also being enquired into. No quality issue of the pouches was raised when the criterion for determining the amount of Central Excise duty payable was not dependent on the maximum speed of the machine and the plea raised presently is a bogey, not supported by proof of waste generated or return of goods. The manufacturer had never specified that the maximum speed of the machine is 750 ppm but had only advised that it would run smoothly at a speed of around 740 bpm to 750 bpm. The petitioner also did not send the machine to M/s Heat and Control Pvt. Ltd. and instead they preferred to change the controller of the machine. When the maximum speed at which the machine can be operated had been recorded in the procuring documents and the W P(C) 6065/ 2016 9 petitioner also having declared the packing speed of the machine as 1000 pouches per minute for the period from July 2014 to March, 2015, there was no question for causing any enquiry, including physical verification, to ascertain or determine the maximum speed of the machine at which it can be operated either in terms of Rule 6(2) or Rule 6(6) of the Rules. It is denied that the petitioner was pressurized to make any deposit during the enquiry. The Certificate dated 06.04.2016 of the manufacturer was procured by the petitioner after making specific request and the same is also an attempt to mislead the department about the maximum speed of the machine. Mr. C. K. Sharma had also avoided summons by submitting false information as Mr. C. Roy Choudhury stated that the matter regarding change of Controller of the machine had been discussed with him, he being the Business Head. It is further pleaded that the petitioner Company is a habitual offender and had been punished several times for evasion of duty by way of fraud, willful mis-statement, suppression of fact and contravention of provisions of law. It is pleaded that the enquiry and the order in appeal are mutually exclusive in that while the enquiry undertaken is regarding evasion of Central Excise duty by way of fraudulent manipulation of the maximum speed of the machine by the petitioner, the order in appeal emanates from the order dated 27.11.2015 accepting a single declaration dated 23.11.2015 with modification of maximum speed of the machine. It is also stated that against the aforesaid order, necessary action is being initiated.
5. The petitioner had also filed a reply affidavit to the said affidavit-in-opposition of the respondents. In the said affidavit, it is pleaded that Section 3A of the Act as well as Rule 6(6) of the Rules allow modification/alteration of the factors relevant for production and maximum packing speed of the machine is to be understood as the actual maximum speed at which it can be operated. Allegations of fraud, collusion, making of willful mis-statement and suppression of facts are denied as baseless and lacking in foundation. It is asserted that the enquiry and the order of the Commissioner of Appeals are on one and the same issue and the stand taken to the contrary in the affidavit is plainly misconceived and the issue having been decided and the same having not been questioned by filing appropriate appeal under Section 35B/35E of the Act, continued enquiry is illegal and the respondents have misused the provisions of Sections 11A and 14 of the Act. It is stated that the enquiry is being conducted with a pre-conceived notion to harass the petitioner and its officials, refusing another physical verification of the machine in order to re-confirm the speed of the machine.
6. Drawing attention of the Court to the affidavit filed, Dr. Saraf submits that it is not disputed by the respondents that the CPU of the machine had been changed. As a W P(C) 6065/ 2016 10 consequence of the change of the CPU, the maximum packing speed of the machine varies between 301-750 pouches per minute. The petitioner Company had declared the speed at 750 pouches per minute even when speed was not relevant for duty purpose, and had subsequently changed it to 1000 pouches per minute, when packing speed of the machine was relevant, and continued to declare it as such till such time the Company started getting complaints about the packing of the pouches.
7. Dr. Saraf has submitted that the declaration of maximum packing speed of the machine in question having been duly approved by the Assistant Commissioner of Central Excise by exercising his powers under Rule 6(2) of the Rules, the impugned enquiry conducted in connection with the packing speed of the machine is, ex facie, illegal, arbitrary and without jurisdiction. It is further submitted by Dr. Saraf that at no point of time the orders passed by the Assistant Commissioner of Central Excise approving the declarations with regard to maximum speed of the machine were assailed by availing the remedy of appeal under Section 35E of the Act. Further contention of Dr. Saraf is that the issue, revolving around which the impugned enquiry had been commenced and is going on for nine months prior to the approach made by filing this writ application, had been decided in favour of the petitioner by the appellate authority by passing an order dated 30.08.2016 and, therefore, the impugned enquiry and issuance of summons is nothing but an abuse of power provided under Section 14 of the Act. It is also contended by him that Rule 6(6) of the Rules enables a manufacturer to make changes in respect of any of the parameters, including maximum packing speed of the machine. He submits that there can be no justification to keep on summoning high ranking officials of the Company on the very same issues in the name of enquiry and the refusal of the respondents to conduct a fresh physical verification of the machine, despite offer being made by the petitioner voluntarily to determine the maximum packing speed of the machine in order to set at rest any doubt or misgivings that the respondents might have had harboured, manifestly demonstrates that the enquiry is continued only to harass the petitioner and its senior officials despite the fact that the maximum packing speed of the machine had been physically verified and approved by the Assistant Commissioner of Central Excise vide order dated 16.05.2015. In support of his contentions, Dr. Saraf has placed reliance on the following judgements: Continental Foundation Joint Venture Holding, Nathpa, H.P. -Vs- Commissioner of Central Excise, Chandigarh-I, reported in (2007) 10 SCC 337, Union of India & Ors. -Vs-Kamlakshi Finance Corporation Ltd., reported in 1992 Supp (1) SCC 443, A.S. Corporation -Vs- Union of India, reported in (2008) 223 ELT 26, Sri Ganesh Chandra Mrig -Vs- The Superintendent (Prev.), Commissionerate of Central Excise, reported in (2010) 110 CLT 526 and a judgement W P(C) 6065/ 2016 11 rendered by the Rajasthan High Court on 12.04.2016 in the case of Dinesh Fragrance -Vs- Union of India [WP(C) 3243/2015].
8. Mr. B. Sarma, learned Standing counsel, Central Excise and Customs, has submitted that the enquiry proceeding was initiated under Section 11A of the Act for short payment of about Rs.27 crores of excise duty occasioned by manipulation of maximum packing speed of the machine by replacement of the CPU. It is strenuously argued by him that the order dated 30.08.2016 passed by the appellate authority cannot be an impediment for conducting and carrying on with the enquiry and to issue summons for the purpose of bringing the enquiry to its logical end. He has emphasized that the enquiry undertaken is a judicial proceeding within the meaning of Section 193 and 228 of the Indian Penal Code, 1860. He has assiduously argued that the subject-matter of the issue involved in the order of the Assistant Commissioner of Central Excise is different as the enquiry is conducted to recover duty which is alleged to have been evaded by way of fraud, willful mis-statement, suppression of fact and contravention of the provisions of the rules. He has submitted that the enquiry is almost complete and unless the Director of the petitioner Company is not summoned for the purpose of the enquiry, the same will be vitiated on account of Section 9AA of the Act. Mr. Sarma places reliance on the following judgements: Union of India & Ors. -Vs- Sudarshan Plywood Industries Ltd. & Ors., reported in 1997 (2) GLT 1, Assistant Collector of Central Excise, Chandan Nagar, West Bengal -Vs- Dunlop India Ltd. & Ors., reported in (1985) 1 SCC 260, Videocon Industries Limited -Vs- Union of India & Ors., reported in 2008 (Suppl) GLT 780, Ugar Sugar Works Ltd. -Vs- Delhi Administration & Ors., reported in (2001) 3 SCC 635, Tamil Nadu Housing Board -Vs- Collector of Central Excise, Madras & Anr., reported in 1995 Supp (1) SCC 50.
9. I have considered the submissions advanced by the learned counsel appearing for the parties and have perused the materials on record.
10. From the stand taken in the affidavit-in-opposition of the respondents, it is clear that the respondents had not disputed the fact that the petitioner Company had changed or replaced the CPU (interchangeably used as Controller) and that the subject matter of enquiry is manipulation of the machine in a fraudulent way. By doing so, the speed of the machine is lowered, which has resulted in short payment of Central Excise duty. As a part of enquiry, summons had been issued to Officers of the petitioner Company who are either directly involved in changing of the machine parts such as the Controller or had consented to the declaration of the speed of the machine to the Department, which is less than the actual operating speed of the machine.
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11. Rule 6(2) of the Rules provides that when a declaration is made under Rule 6(1), the Deputy Commissioner or the Assistant Commissioner of Central Excise, as the case may be, may make such enquiry as may be necessary including physical verification and, thereafter, approve the declaration including the declaration with regard to maximum packing speed at which the machine can be operated for packing of notified goods of various retail sale prices and, consequently, determine and pass order concerning the annual capacity of production of the factory within 3(three) working days. The second proviso to Sub-rule 6(2) provides that if a manufacturer does not receive the approval in respect of his declaration within a period of 5(five) working days, the approval shall be deemed to have been granted subject to the modifications, if any, which the Deputy Commissioner or the Assistant Commissioner of Central Excise, as the case may be, may communicate later on but not later than 30(thirty) days of filing of the declaration.
12. Therefore, the approval of declaration is not automatic or routine and before the declaration is approved, the authority can make necessary enquiry including physical verification of the machine. The expression used in Sub-rule 6(2) is "maximum packing speed at which each of the packing machines available in his factory can be operated for packing". The declarations submitted by the petitioner were approved as and when the same were submitted. After the CPU was replaced, a non-commercial trial run was undertaken in presence of departmental officer as well as a Government registered Chartered Engineer nominated by the Department. According to report submitted, in the trial run it had been found that the maximum packing capacity of the machine was 730 pouches per minute for both 18 gm. and 10 gm. pouch and accordingly, by the order dated 16.06.2015, the Assistant Commissioner of Central Excise re-determined the maximum packing speed in the slab of 301-750 pouches per minute. This position continued until order dated 27.11.2015 was passed by the Assistant Commissioner of Central Excise holding that maximum packing speed of the machine is 751 pouches per minute and above.
13. While passing the aforesaid order dated 27.11.2015, it was noted that there was no good reason for physical verification of the machine to determine the maximum packing speed at which it could be operated. The aforesaid order was set aside by the Commissioner (Appeals) vide his order dated 30.08.2016 on an appeal preferred by the petitioner.
14. While passing the said order, the appellate authority had recorded the finding that provisions of Rule 6(6) of the Rules do not bar a change in the parameter relating to maximum speed and that the provision does not put any pre-condition for a change in the parameters declared and approved. The appellate authority went on to say that no explanation also is needed for effecting a change in the parameters so long as the change is W P(C) 6065/ 2016 13 genuinely effected and is physically verified by the departmental officer nominated by the Assistant Commissioner. It was further held that all the declarations about the maximum speed of the machine were on record and nothing was mis-declared. There was no concealment of any material fact when the physical trial was conducted and the Officers had carried out the verification by applying strict parameters. It was recorded that Chartered Engineer's certificate is an authentic document to verify the speed of the machine as discussed in paragraph B42 of the minutes of Tariff Conference held on 28.10.2015 and 29.10.2015. It was held that there is no record/evidence of clandestine removal of finished products by the appellant during the period from June, 2015 to October, 2015. It was also recorded that when the machine was not in a position to pack more than 750 pouches, the determination of duty for higher quantity is apparently bad in the eye of law and does not hold good.
15. Thus, a view had been taken by the appellate authority that it is permissible to change parameter relating to maximum speed and no explanation is needed for change of the parameters. Till date, the aforesaid decision and findings of the appellate authority has not been interfered with by any forum.
16. It is not in dispute that the petitioner had paid excise duty based on the annual capacity production calculated on the basis that the maximum packing speed of the machine falls in the category of 301-750 pouches per minute.
17. Having regard to the findings recorded by the appellate authority, I am of the considered opinion that these findings have a direct bearing on the legality and tenability of the enquiry which is initiated solely for the reason of lowering the packing speed of the machine as the change of maximum packing speed of the machine was the central issue before the appellate authority. If it is permissible to change the parameter of maximum speed of the machine, that too, without any explanation, as held by the appellate authority, the very edifice of the enquiry has no foundation. In that context, the plea of the respondents that the issue of packing quality was not raised earlier pales into insignificance.
18. I am unable to subscribe to the contention advanced by Mr. Sarma that the issue before the appellate authority was only in respect of legality and validity of the order dated 27.11.2015 in respect of one single declaration. No doubt, the challenge was in the context of the order dated 27.11.2015, but while examining the validity of the said order, the appellate authority had taken into consideration the mechanism of the Rules and had interpreted the same in a manner which cannot be said to be applicable only in respect of the said order dated 27.11.2015. Unless the aforesaid order is interfered with, the departmental officers are obliged to follow the principles laid down. If one wing of the W P(C) 6065/ 2016 14 department is allowed to be at the cross-roads permitting to take a view contrary to the one taken by a superior authority of another wing, the same, apart from bringing in uncertainty, will lead to administrative chaos and, in the process, industrial development will be a casualty.
19. In Kamlakshi Finance Corporation Ltd. (supra), the Supreme Court had held that in disposing of the quasi-judicial issues, revenue officers are bound by the decisions of the appellate authorities. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the department cannot furnish a ground for not following it unless its operation has been suspended by a competent court. It was observed that if the salutary principle is not followed, the result will be only undue harassment to assesses and chaos in administration of tax laws.
20. The view that I have taken also gains support from the judgement in Dinesh Fragrance (supra). In the said case, a Division Bench of the Rajasthan High Court at Jodhpur had observed that upon alteration of the pouch packing machine, the Superintendent (Technical) had declared that the machine cannot work/pack at any condition at a speed of packing more than 700 pouches per minute and, on the teeth of such declaration, the Division Bench refused to accept the stand of the respondents that the machine was having the capacity to produce 1000 pouches per minute notwithstanding the fact that the petitioner therein had, on his own, declared the production speed of the packing machine up to 1000 thousand pouch per minute.
21. Sri Ganesh Chandra Mrig (supra) was in the context of summoning of the Managing Director of the company under Section 14 of the Act for personal appearance after conducting search and seizure in the business house of the company and, in the absence of any indication in the summons that any particular fact or document, which is material for the purpose of enquiry, is in possession of the Managing Director, the Court had observed that the authority issuing summons was more interested in the personal appearance of the Managing Director than to apply his mind to the books of account, documents seized in course of search and seizure and the documents produced thereafter to find out the amount/quantum of Excise Duty evaded, if any. It was observed that the Central Excise authority should not summon any person in exercise of powers under Section 14 of the Act in a mechanical manner. In A.S. Corporation (supra), the Court had recorded a finding that each and every detail, which was called for by way of summons, already existed with the respondent department, it having seized the same under seizure and that it was not even the case of the respondents that they were in possession of any information which would go W P(C) 6065/ 2016 15 to show that the petitioner had withheld any books or documents which were relevant and material. In the backdrop of the aforesaid facts, it was observed by the Court that issuance of summons was only with a purpose to create record of having made an enquiry or for some other collateral purpose which was not necessary to be spelt out at that juncture. In the instant case, the Director of the company is summoned, as it appears from the pleadings in the affidavit as well as submissions of Mr. Sarma, on the grounds that he was instrumental in taking a decision for replacement of the CPU and that the enquiry will be vitiated on the touchstone of Section 9AA of the Act. Reliance placed on Section 9AA is wholly misconceived as Section 9AA is on the subject of offences by companies and the same has no relevance for the purpose of the enquiry in question. From the summons issued to him, it is clear that the summons contains more or less the same Schedule as with other summons issued to the other officials. In the context of the enquiry, it is not very material who had taken the decision to change the CPU. If the maximum speed of the machine could not have been altered, on that ground the authority could have proceeded to issue show cause notice. However, as noted earlier, the order of the appellate authority had made it clear that maximum speed of the machine can be altered, that too, without any explanation.
22. Continental Foundation (supra) was in the context of the Revenue invoking the extended period of limitation under Section 11A of the Act before its amendment with effect from 08.04.2011 and, in the context thereof, it was observed by the Supreme Court that mere omission to give correct information is not suppression of fact unless it was deliberate to stop payment of duty.
23. In Sudarshan Plywood Industries Ltd. (supra), relied on by Mr. Sarma, the company was resorting to devious method of realizing additional amount from the wholesale buyers over and above the price declared to the department through under valuation. Prime quality of the plywood was cleared ex-factory under the garb of defective grades paying lower rate of duty and subsequently selling them under different nomenclature at higher price. In the background of the aforesaid facts, the appellate court had set aside the judgement of the Single Judge and had allowed the appeal by the Revenue. The facts in Sudarshan Plywood Industries Ltd. (supra) are entirely different from the facts of the instant case. In Dunlop India Ltd. (supra), the Supreme Court deprecated the practice of grant of interim orders which has the potential of causing public mischief for mere asking. As the instant writ petition is taken up for disposal, the decision in Dunlop India Ltd. (supra) will have no application in the present case.
W P(C) 6065/ 2016 16
24. In Videocon Industries Limited (supra), the petitioner had questioned the jurisdiction of the authority to issue summons under Section 14 read with Section 83, Chapter 5 and 5A of the Finance Act, 1994 and to proceed with the matter. This Court had observed that it could not be said that the impugned summons had been issued without jurisdiction and, also considering that the same had not been issued mala fide and in arbitrary exercise of powers, declined to invoke the writ jurisdiction. The factual matrix of Videocon Industries Limited (supra), in the considered opinion of the Court, is entirely different from the facts of the present case.
25. The decision relied upon by Mr. Sarma in the case of Ugar Sugar Works Ltd. (supra) with particular reference to paragraph 18 thereof is not applicable to the instant case. The Supreme Court had observed that the courts, in exercise of their power of judicial review, do not ordinarily interfere with the policy decisions of the executive unless the policy can be faulted on grounds of mala fide, unreasonableness, arbitrariness or unfairness etc. The Supreme Court further observed that if the policy cannot be faulted on any of these grounds, the mere fact that it would hurt business interest of a party, will not justify invalidating the policy. It was also highlighted that in tax and economic regulation cases, there are good reasons for judicial restraint, if not judicial deference, to judgment of the executive. This case also has no application as the Court is not called upon to decide any policy issue.
26. In view of the above discussions, I am of the considered opinion that the enquiry initiated against the petitioner company by letter dated 18.11.2015, in the facts of this case, ought not to be permitted to be continued and, therefore, the enquiry initiated in relation to packing machine ID No. 131023840 is quashed. The amount of Rs. 2 crores, which was deposited by the petitioner, will be adjusted against excise duty payable in future.
27. Writ petition is allowed as indicated above. No cost.
JUDGE RK W P(C) 6065/ 2016 17 W P(C) 6065/ 2016 18 W P(C) 6065/ 2016