Karnataka High Court
Asha Rubber Industries, Bangalore vs Collector Of Central Excise, Bangalore on 1 January, 1800
Equivalent citations: 1988(15)ECC250, 1988(34)ELT528(KAR), 1987(3)KARLJ188
ORDER
1. The petitioner is an assessee under the Central Excise Act (the Act). Against the order of Collector, Central Excise, Bangalore dated 28-10-1986 (Annexure - B), the petitioner filed an appeal before the Central Excise and Gold Control Appellate Tribunal, New Delhi (CEGAT). Along with the appeal, the petitioner filed an application under Section 35F of the Act to dispense with the requirement of deposit of duty of Rs. 21,74,402.78ps. and a penalty of Rs. 10,00,000/- imposed by the Collector.
2. It was pleaded by the petitioner in the said application that the Tribunal may dispense with the pre-deposit on the following grounds :
(i) that the order of the Collector was based on certain statement of his employees and customers which were relied upon by without giving an opportunity to the petitioner to cross-examine them;
(ii) that the quantum of differential duty was arrived at on the assumption that the petitioner had cleared treadrubber of higher quality and had declared lower value before the department;
(iii) that this allegation was based on the report of the Chemical Analyst which was relied upon by the Collector without furnishing a copy of the same to the petitioner; and,
(iv) that the order of the Collector was entirely based on certain hypothetical calculations and solely based on one sale-bill, and, hence, the entire demand was disputed in the appeal on several grounds.
3. Besides the grounds enumerated in the application under Section 35F of the Act, the grounds urged in the Memorandum of appeal, in detail, also pressed to be taken into consideration while considering the application under Section 35F of the Act.
4. The liquidity position of the petitioner and the inability to furnish bank-guarantee for the huge sum of more than 30 lakhs, was also advanced before the Tribunal.
5. On behalf of the petitioner it was argued by Sri K.N. Balagopalan that this Court should interfere with the order of the Tribunal for the following reasons :-
(i) that the computation of the differential duty is arbitrary and capricious and is based on the report of the Chemical Analyst, which was relied upon by the Collector without confronting the petitioner with the said report;
(ii) that the petitioner has a 'prima facie' case both on facts and in law and the insistence on deposit of the entire duty of Rs. 20,71,402.78ps. is arbitrary and cannot be supported either on facts or logic; (iii) that the Tribunal failed to appreciate the hardship that would be caused to the petitioner as a consequence of this direction, and
(iv) the consequence of the failure to deposit resulting in the dismissal of the appeal.
6. It was argued for the Department by its representative before the Tribunal the the duty liability was ascertained and quantified on the basis of the statement of the petitioner's customers,besides his own. On the question of denial of cross-examination it was argued that it was rejected on valid reasons. So far as the Chemical Analyst's report was concerned, it was submitted before the tribunal, on behalf of the Department that the petitioner had knowledge of the same and had also accepted it.
7. The Tribunal agreed with the submissions made on behalf of the Department and dispensed with the deposit of Rs. 10,00,0000/- and the fine of Rs. 9,500/-, and directed the petitioner to deposit the entire differential duty of Rs. 20,71,402.78ps. This order of the Tribunal, (Annexure - C), is in challenge in this writ petition.
8. This order is sought to be justified by Sri C. Shivappa, for the Department, and has relied upon the reasons given by the Tribunal in its order.
9. Elaborating the contentions raised in the writ petition, it is argued by Sri Balagopalan that the Tribunal's order does not stand the test of fair-consideration of the petitioner's case advanced in support of its plea for dispensing with the deposit of both the duty and penalty, pending decision of the appeal on its merits. The order, according to the learned Counsel for the petitioner, suffers from several infirmities and is not a judicious order.
10. It is pointed out that the Tribunal failed in its statutory duty in not considering the various grounds urged before it for dispensing with the pre-deposit. It is contended that the said order has to be set aside on the sole ground that it is not a speaking order. It is also argued that the Tribunal has disposed of the application in an arbitrary manner without the application of its mind, both as regards the prima facie case and the plea of violation of principles of natural justice by the Collector, and as to its liquidity position.
11. Normally, it is not the function of this Court to interfere with the discretionary order of the Appellate Tribunal made in exercise of its power under the proviso to Section 35F of the Act. But, I am impelled to interfere in this case having regard to the facts and circumstances of the case and for the reasons to be stated hereinafter.
12. Several decisions have been cited by the learned Counsel for the petitioner in support of his contentions about the retracted statements and reliance on them for purposes of determining the liability under the Act. (See : ).
11. So far as the failure to furnish the Chemical Examiner's report to the petitioner and denial of his right to cross-examine the expert, it is submitted, has resulted in grave injustice and that therefore the entire order of the Collector demanding the duty on the basis of the said report, should have been considered by the tribunal for purpose of stay and reliance is placed on the decisions reported in :
(i) (AIR 1968 Delhi 84) - M/s. Gupta Tobacco Co. v. Union of India and
(ii) 1986 (23) E.L.T. 14 (Cal.) - Rungta Sons (P) Ltd. and Another v. Collector of Customs
14. The submissions of the learned Counsel for the petitioner deserves utmost consideration by this Court since the direction of the Tribunal, if not complied with, will result in dismissal of the petitioner's appeal before the Tribunal. The result, therefore, is of grave consequence and this Court's interference in deserving cases would be called for, if it is shown that the Tribunal's order is perverse and should be set aside.
15. Section 35F of the Central Excises and Salt Act, 1944, which is relevant is reproduced :-
"35-F. Deposit, pending appeal, of duty demanded or penalty levied. Where in any appeal under this Chapter, the decision or order appealed against relates to any;duty demanded in respect of goods which are not under the control of central excise authorities or any penalty levied under this Act, the person desirous of appealing against such decision or order shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied :
Provided that where in any particular case, the Collector (Appeals) or the Appellate Tribunal is of opinion that the deposit of duty demanded or penalty levied would cause undue hardship to such person, the Collector (Appeals) or, as the case may be, the Appellate Tribunal, may dispense with such deposit subject to such conditions as he or it may deem fit to impose so as to safeguard the interests of revenue."
The jurisdiction of the Tribunal under Section 35F of the Act, though, is one of discretion conferred by the statute, is required to be exercised with utmost circumspection, so that the appellant's right of appeal is not taken away by imposing such conditions which are practically impossible of compliance and are not made in a judicious manner.
16. The Courts, in particular, High Courts, are being approached more and more, challenging such orders made under Section 35F of the Act, and it is my experience that it is now reduced to a farce. Some Benches of the Appellate Tribunal (CEGAT), are rejecting the applications made under Section 35F of the Act, by issue of cyclostyled orders. The Tribunals do not seem to appreciate that irreparable injury to the appellants would ensue by passing arbitrary orders rejecting the prayer for dispensing with the pre-deposit of duty in dispute, either the whole or in part, on wholly untenable grounds.
17. It is with the object of obviating such consequences, several High Courts have interfered with such orders and laid down guidelines for a proper approach by the Tribunal.
18. If, on the facts of a given case, rules of natural justice are grossly violated or certain evidence is relied upon to the detriment of the assessee without making it available to the person concerned, and the like, it would be the duty of the Tribunal, to consider such factors which constitute a prima facie case, even at the stage of considering the application for stay pending a detailed consideration at the hearing and also to take into consideration the appellant's chances to success or whether it would be a case for remand.
19. In this connection, the observations of the Calcutta High Court by Justice Sri M.N. Roy made in Rungta Sons (P) Ltd. v. Collector of Customs - [1986 (23) ELT 14, should support the petitioner's case.
20. His Lordship was dealing with Section 129-E of the Customs Act, 1878, corresponding to Section 35F of the Central Excises and Salt Act, 1944, in similar circumstances pleased by the petitioner in that case.
21. His Lordship's observation in Paragraph 33 becomes relevant and aposite to this case since the Chemical Analyst's report had been relied upon by the Collector in that case behind the back of the petitioner, and the High Court set aside the Collector's order on merits, on this sole ground, and remanded the matter for fresh hearing.
22. The relevant portion in Paragraph 33 of the Judgment - 1986 (23) E. L.T. 14, is reproduced below :-
"33. ............................
As the samples in the instant case were drawn behind the back of the petitioners, such action was claimed to be contrary to the provisions of the said Act and it was contended that such fact and also the fact that a report, which was obtained and was looked into or considered, was not supplied to them, would also constitute violation of principles of natural justice.................".
23. Even in Dunlop India case , the Supreme Court laid down four factors to be taken into consideration while issuing stay orders. Those guidelines were, no doubt, given in the context of issue of indiscriminate stay-orders by the High Court. But, the observations of the Supreme Court made in the course of the Judgment in Paragraph 5, at page 334, should be understood as applicable to the Appellate Tribunals, which are constituted under various statutes :-
"5. .........................
All this is not to say that interim orders may never be made against public authorities. There are, of course, cases which demand that interim orders would be made in the interests of justice. Where the gross violations of the law and injustices are perpetrated or are about to be perpetrated, it is the bounden duty of the court to intervene and given appropriate interim relief. In cases where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizen's faith in the impartiality of public administration, a Coaurt may well be justified in granting interim relief against public authority. But since the law presumes that public authorities function properly and bona fide with due regard to the public interest , a court must be circumspect in granting interim orders of far reaching dimensions or orders causing administrative, burdensome inconvenience or orders preventing collection of public revenue for no better reason than that the parties have come to the Court alleging prejudice, inconvenience or harm and that a prima facie case has been shown. There can be and there are no hard and faste rules. But prudence, discretion and circumspection are called for. There are several other vital considerations apart from the existence of a prima facie case. There is the question of balance of convenience. There is the question of irreparable injury. There is the question of public interest. There are many such factors worthy of consideration."
24. The Tribunal's order in this case also suffers from further infirmity, namely, the application made under Section 35F of the Act is disposed of in a summary manner, in that, it is also not a speaking order. The statutory discretion which vests with the Tribunal is coupled with the duty to consider all aspects of the case and to pass an order considering each one of the grounds urged for dispensing with the pre-deposit.
25. On the facts of the present case the total amount of duty and penalty exceeded Rs. Thirty lakhs and the Tribunal's direction to deposit Rs. Twenty lakhs representing the duty and dispensing with the deposit of penalty of Rs. Ten lakhs, is not based on any reason nor is there any application of its kind, but appears to have been made on adopting some ad-hoc proportion having regard to the total sum of duty and penalty involved in the appeal.
26. Sri Balagopalan has vehemently argued that the entire computation of total liability arrived at by the Collector is arbitrary, perverse and capricious as shown in the Annexures to his order which given the break-up for the quantification. The quantification is done, admittedly, on a tentative basis subject to receipt to final reports from the concerned jurisdictional officers who had been asked to send final reports after due investigation.
27. He has demonstrated from the Annexures, and, in particular, the 'Abstract' prepared showing a total difference of duty of Rupees 13,24,725.90ps., is solely based on the Chemical Analyst's Report. The case of the department, as set-out in paras 20 and 21 of the Collector's order, wherein the Collector has referred to two types of modus-operandi adopted by the petitioner to cover up the under-valuing its products, firstly, by issuing invoices for supply of vulcanising solution which was found to be bogus, and, secondly, by under-valuing the products at Rs. 7.84ps. per kg., whereas, the tread rubber was of a higher quality, which, according to one of the invoices seized, showed rs. 23.50ps. per kg.
28. Thus, a flat rate of Rs. 23.50 is applied to all the removals and supplies made to several customers in and outside Karnataka, the details of which are given in the Abstract. This difference in value is arrived at, according to the petitioner, on the basis of the Chemical Analyst's report, and relying on one stray invoice showing Rs. 23.50ps as the real value of one kg., of superior tread-rubber supplied by the petitioner. This contention was specifically raised by the petitioner in his application filed for waiver under Section 35F of the Act, and was argued before the Tribunal both by the petitioner and by the departmental representative.
28A. It is very relevant to point out that the Collector's order is significantly silent about the Chemical Anaylyst's report, but that it was relied upon by the Collector cannot be disputed on his behalf. The Departmental Representative before the Tribunal did refer to the report but tried to justify the Collector's order.
29. The Note annexed to the Abstract gives credence to and supports the case of the petitioner that the differential duty is calculated on two hypothetical grounds, viz.,
(i) the report of the Chemical Analyst as to the higher grade tread rubber supplied and the conclusion of under-valuation by Collector on this premise:
(ii) a flat rate of Rs. 23.50ps. per kg., is adopted in respect of all supplies made and the differential value is adopted and the differential duty calculated on that basis.
That such a computation was made even before final reports of investigation were received by the Collector, the proceeded on the assumption that the value of all supplies made should be graded at a higher rate of Rs. 23.50 per kg., cannot be disputed.
30. The case of the Department so far as the levy of duty as per Annexures 'D', 'F' and 'H', which refers to flow-back in the guise of supply of vulcanising solution and other items totalling to a sum of Rs. 7,04,667.88ps. should be left to the Appellate Tribunal to consider in the appeal, on merits and I do not wish to express any opinion on this, and the direction to deposit this sum should stand.
31. I had to expend considerable time both at the hearing of the writ petition and later, to analyse the facts and figures and appreciate the contentions with reference to the points raised in the application, the details of calculations referred to in the Annexures to the Collector's order, the basis for the differential levy and its computations, etc. All this became necessary in view of the unsatisfactory way the Tribunal has dealt with the matter and in the interests of justice.
32. I do not find it would serve any purpose to direct the Tribunal to make a fresh order in the light of th observations made in the course of this order.
33. The learned Counsel for the petitioner has argued before me all the contentions which were urged before the Tribunal, and I am convinced that this is a case where the order of the tribunal requires to be modified.
34. After a very elaborate and careful consideration of the contentions of the petitioner, I am of the opinion that it would be in the interests of justice to give relief to the petitioner to the extent it is covered by the Abstract (II) to the Collector's order, viz., in a sum of Rs. 13,24,725.90ps.
35. In the result, the Writ Petition is allowed in part, and the order of the Appellate Tribunal (Annexure 'C'), is modified in the following terms :-
36. The Appellate Tribunal is directed to hear the appeal expeditiously without insisting on pre-deposit of Rs. 13,24,725.90ps. and subject to the petitioner depositing a sum of Rs. 7,04,667.88ps. within four weeks from this.
37. The rest of the order is left undisturbed.