Orissa High Court
J.K. Corporation Ltd. vs Commissioner Of C. Ex. And Cus. on 14 December, 2006
Equivalent citations: 2007(210)ELT501(ORI)
Author: I. Mahanty
Bench: I. Mahanty
ORDER A.K. Ganguly, J.
1. These three reference cases being CE REF Case Nos. 10 of 2003, 11 of 2003 and 12 of 2003 were heard analogously as they arise out of a common final order dated 28th January, 2003 passed by the Customs Excise and Gold (Control) Appellate Tribunal. East Zonal Bench, Kolkata (hereinafter referred to as "Tribunal"). By the said final order, by a majority decision, the three appeals filed by the J.K. Corporation Limited (hereinafter referred to as "Company") were rejected. Certain questions of law were framed in the statement of cases forwarded by the Tribunal. But when hearing commenced before this Bench, this Court, with consent of the learned Counsel for the parties, re-framed the questions of law which are common in all these cases and are as follows:
1. Whether the conclusion of the Tribunal that the Assessee Company had not satisfactorily explained the difference in quantities in the two sets of records, the statutory records under the Central Excise Act and the Central Excise Rules and the private records required to be maintained in terms of ISO 9002, is not based on evidence and materials on record, has been arrived at ignoring relevant materials on record and is based on conjectures and surmises and by misdirecting itself in point of law and, therefore, the said conclusion is perverse and vitiated in law ?
2. Whether, in the facts and circumstances of the case, the Tribunal was right in upholding the finding of the Commissioner that the Assessee Company had clandestinely removed 858.938 MT of the input materials, MEG, without payment of Central Excise duty and whether the said conclusion of the Tribunal is based on evidence and materials on record and is not perverse and/or is not vitiated in law ?
3. Whether the Tribunal has misdirected itself in law in coming to the conclusion that the particulars contained in the Shift Engineer's Log Book maintained under ISO 9002 is to be taken into account disregarding those contained in the statutory records maintained under the Central Excise Act, 1944 and/or the Central Excise Rules, 1944 and whether the said finding of the Tribunal is not based on evidence and materials on record and is perverse and vitiated in law ?
4. Whether in the facts and circumstances of the case, the Tribunal was right in law in holding that the Commissioner of Central Excise had correctly imposed penalty upon the Assessee Company under Rule 173Q of the Central Excise Rules, 1944 ?
2. The material facts of the case are, the said Company has a Synthetics Division in Orissa and that Division manufactures Polyester Staple Fibre and Polyester Filament Yarn under a collaboration agreement with Chemtex Incs. USA and Cheil Synthetics, South Korea. These products were dutiable under the Central Excise and the petitioner's case is they were cleared after due compliance with all the procedure under the Central Excise and upon payment of duties of Central Excise from the factory of the Synthetics Division of the Company at Dhenkanal, Orissa.
3. For Manufacturing of the aforesaid items, certain raw materials are required which are known as Mono Ethylene Glycol (hereinafter referred to as "MEG"), Purified Terephthalic Acid (hereinafter referred to as "PTA") and Polypropylene Chips (hereinafter referred to as "PP Chips"). All these items are falling under the First Schedule to the Central Excise Tariff Act, 1985.
4. The Company's case is that it availed of Modvat credit in respect of the duty paid on these raw materials used in or in relation to the manufacture of the final products in accordance with the relevant statutory provisions at the material point of time.
5. Three reference cases are in respect of three different raw materials. CE REF Case No. 10 of 2003 is in respect of MEG, CE REF Case No. 11 of 2003 is in respect of PP Chips and CE REF Case No. 12 of 2003 is in respect of PTA.
6. On 5th March, 1996 the Company received a show cause notice dated 1st March, 1996 issued by the Commissioner, Central Excise and Customs, Bhubaneswar in respect of MEG. The allegations in the said show cause notice, inter alia, are the actual consumption of MEG as per the Shift Engineers' Log Book for the period from October, 1991 to October, 1995 was not matching the consumption of energy as shown in the statutory RT-5 which are quarterly returns furnished by the Company to the Central Excise Department.
7. It was further alleged that on a comparison of the consumption figure of MEG and in respect of both indigenous/imported duty paid and non-duty paid variety, as indicated in RT-5 returns with the Shift Engineers' Log Book, it was found that the Company had availed Modvat credit on 858.938 MTs but had not utilized the same in manufacturing of finished goods during the said period, namely, between October, 91 to October, 95. It was, therefore, alleged that differential quantity having not been consumed in the manufacturing process the same should have been available inside the factory premises but it was found to be not available. Therefore, it was alleged that excess and unutilized MEG has been diverted elsewhere by the Company without following due procedure laid down in Rule 57F of Central Excise Rules and the duty involved therein works out to an amount of Rs. 56,68,991.00 calculated at 20% based on the value in the invoice. The Company was, therefore, called upon why Central Excise Duty amounting to Rs. 56,68,991/- as mentioned in the show cause notice should not be paid by the Company in cash under Section 11A of Central Excise Act read with Rule 9(2) thereof and under Rule 57-1 of the said Rule being a central excise duty involved on 858.938 MTs of MEG and penalty should not be imposed under Rule 9(2), 173Q, 209, and 226 of the Central Excise Rules for violation of Rule 9(1), 52A read with Rule 57F, 173F, 173G and 226 of the said Rules. The Company gave a detailed reply to the said show cause notice on 27th December, 1997 and thereafter a personal hearing was held in which the Company had appeared and made submissions and thereafter on 20th September, 2000 the Commissioner of Central Excise & Customs, Bhubaneswar passed an order whereby the demand made in the show cause notice was confirmed and penalty of Rs. 10,00,000.00 was imposed under Rule 173Q of Central Excise Rules, 1944 for violation of Rules 9(1), 52A read with Rule 57F, 173F, 173G, 226 and 571 of Central Excise Rules, 1944. A further penalty of Rs. 10,000.00 was imposed on Sri Surendra Malhotra, Director of M/s. Orissa Synthetics, Dhenkanal under Rule 209A of Central Excise Rules, 1944.
8. Being aggrieved by the said order of the Commissioner, Central Excise & Customs, Bhubaneswar, the Company preferred an appeal before the Tribunal which was registered as Appeal No. E/604 of 2000. Along with the said appeal, as required under Section 35F of the Central Excise Act, the Company also filed an application for stay before the Tribunal and thereafter by order dated 22nd May, 2001 the Tribunal allowed the stay petition unconditionally pending the disposal of the appeal.
9. In so far as raw materials of PP Chips are concerned, the Company received a show cause notice dated 7th January, 1997 issued by the Commissioner of Central Excise & Customs, Bhubaneswar. In the said show cause notice, it was alleged that the Company had allegedly availed Modvat credit on 256.025 MTs of PP Chips during the period from May, 1994 to January, 1995 without having used the same in the factory for manufacturing operation and had allegedly disposed of the same in a manner which is not provided under the Central Excise Rules. It was also alleged that the Company had evaded Central Excise Duty to the tune of Rs. 57,60,563/- and contravened the provisions of Rules 57A, 57F, 57G, 52A, 55, 9, 173F and 173Q of the said Rules by utilizing the Modvat credit availed on the said 256.025 MTs of PP Chips towards payment of duty on finished goods. It was also alleged that the Charging Registers of PP Chips maintained by the Company had allegedly shown that the PP Chips were actually consumed but they were not reflected in the statutory RG-23A Part-I Register and RT-5 returns filed by it. As such, the Company was called upon to show cause why Central Excise Duty amounting to Rs. 57,60,563/- should not be paid by it under Section 11A of the Central Excise Act, 1944 read with Rule 9(2) and Rule 57-1 of the said Rules and penalty should not be imposed upon the Company under Section 11AC of the Act and Rules 57-1(4), 9(2), 173Q and 226 of the said Rules. On 24th April, 1998 the Company filed its reply to the show cause notice and whereupon a personal hearing was held. Thereafter by order dated 11th October, 2000 the Commissioner confirmed the purported demand of Rs. 57,60,563/- as made in the show cause notice and also imposed penalty of an equivalent amount of Rs. 57,60,563/- under Section 11AC of the Act and in the alternative under Rule 173Q of the said Rules and the Company was also asked to pay interest under Section 11AB of the Act.
10. Being aggrieved by the said order of the Commissioner, the Company preferred an appeal before the Tribunal, which was registered as Appeal No. E-17 of 2000. Along with the said appeal a stay petition was filed and the Tribunal allowed the stay petition unconditionally pending the disposal of the appeal.
11. In so far as the raw materials of PTA is. concerned, on 23rd February, 1996 the Commissioner, Central Excise & Customs, Bhubaneswar issued a show cause notice alleging that the actual consumption of PTA as per PTA Charging/PTA Log Book for the period from October, 1994 to September, 1995 was not matching with the consumption of PTA as shown in the statutory RT-5 (quarterly) returns furnished to the Central Excise Department and that on a comparison of the consumption figure of PTA/TPA as reflected in RT-5 returns with PTA Log Books, it was noticed that the Company had availed of Modvat credit on 492.709 MTs of PTA but had not utilized/used the same in manufacturing of finished goods during the period from October, 1994 to September, 1995. It was, therefore, alleged that the excess of PTA not so utilized had been diverted elsewhere without following the due procedure laid down in Rule, 57F of Central Excise Rules and the duty involved worked out to Rs. 72,13,259.60 calculated at 20% based on the value in Invoice No. 0031990 dated 26-6-1995. As such, the Company was called upon to show cause why it shall not pay the Central Excise amounting to Rs. 72,13,259.60 under Section 11A of Central Excise & Salt Act read with Rule 9(2) and under Rule 57-I of the said Rules and penalty should not be imposed under Rule 9(2), 173Q, 209 and 226 for violation of Rule 9(1), 52A read with Rule 57F, 173F, 173G and 226 of the said Rules. On 3rd December, 1997 the Company gave its reply to the show cause notice whereupon a personal hearing was held. By order dated 25th September, 2000 the Commissioner confirmed the duty demand of Rs. 41,75,460/- and also imposed penalty of Rs. 7 lakhs upon the Company under Rule 173Q of the said Rules. Being aggrieved by the said order of the Commissioner, the Company preferred an appeal before the Tribunal which was registered as Appeal No. E-612 of 2000 and the Company also filed a petition for stay. By order dated 14th February, 2001 the Tribunal allowed the stay petition unconditionally till the disposal of the appeal.
12. All these three appeals were taken up together for hearing before the Division Bench of the Tribunal. There was a difference of opinion between the two Members of the Bench of the Tribunal and the matter was placed before the President of the Tribunal for referring the difference of opinion for decision to a third Member of the Tribunal. The difference of opinion between ihe two Members was on the following points;
Whether the appeals of M/s. J.K. Corporation Limited are required to be rejected and the appeals of the other appellants are required to be allowed as held by the Member (Judicial) or all the appeals are required to be allowed as held by the Member (Technical)
13. Thereafter, the appeals were heard by the third Member of the Tribunal. By the common final order of the Tribunal, by a majority decision, the three appeals filed by the Company were rejected while the appeals filed by the other Officers of the Company were allowed. Here, we are not concerned with the appeals filed by the Officers of the Company. However, it appears that the third Member had agreed with the opinion of the Member (Judicial) of the Tribunal. The reference arising out of the said decision of the Tribunal is pending for consideration before this Court.
14. The main question, therefore, is whether the shortage of raw material as allegedly detected in the difference between the alleged consumption of those items by the Company and the record of such consumption in the relevant books amounts to clandestine removal of those items. Along with this issue, another question arises, namely, whether the Tribunal, as a quasi judicial authority, can, ignoring the explanation given on behalf of the Company about the said alleged shortage, come to a finding that the allegations against the petitioner in the show cause notice have been made good ?
15. In course of argument, it has been repeatedly urged by the learned Counsel for the Company that the Member (Technical) has considered the explanation furnished by the Company in its correct perspective and come to a correct finding but the Member (Judicial) has obviously come to an erroneous finding by not at all considering the explanation furnished by the petitioner Company.
16. By referring to the minority decision of the Member (Technical), the learned Counsel for the Company urged that it has been correctly held by the Member (Technical) that the variance between the private records and statutory records is negligible and must be considered to be permissible in the context of the manufacturing process. In other words, it has been contended that the quantities of final products manufactured from the inputs in question were in accordance with the input and out put ratio of the machinery in use. Therefore, there is no reasonable basis for holding that any part of the raw materials had been clandestinely removed since the production of final goods from the raw material used substantially tallies with the input and out put norms. It was pointed out that the Member (Technical) considered the explanation which was furnished by the Company and came to a correct finding that "the differences between quantities of consumption entered in statutory records and private records have been statutorily explained by the assessee", but the opinion of the Member (Judicial) has been to the contrary. Criticising the views taken by the Member (Judicial), the learned Counsel urged that in Paragraph-16 of the order, the Member (Judicial) held that "the appellants have not able to satisfactorily explain the difference between the two records". In assailing the finding, the learned Counsel referred to Paragraph 7 of the notes of argument filed by the Company and specifically urged that in Paragraph-7 at page 284 and in Paragraph-10 at page 286 of the Supplementary Paper Book, the difference between the statutory records and private records has been explained and it has further been stated that it was made very much clear in the written notes that during the material period the difference is reduced to 3.258 MTs., which is insignificant. The learned Counsel for the Company submitted that when a specific explanation has been given before the Tribunal, the Member (Judicial) as a quasi judicial fact finding authority, failed to consider the said explanation and had the explanation been considered and a finding had been arrived at, it would have been difficult for this Court to interfere with the same. But the learned Counsel submitted that in the instant case, the specific explanation offered in the written notes was not at all considered. The learned Counsel, however, submitted that as an appellate authority the Member (Judicial) has merely reiterated the finding of the Commissioner. The learned Counsel also submitted that various decisions which had been cited before the Member (Judicial) were also not properly considered and this will appear from paragraph-17 of the order of the Member (Judicial). The learned Counsel, further submitted that the explanations which had been offered by the Company in Paragraphs-7 and 10 of its written note of submission were also offered by them in their reply to the show cause notice but the same was not considered by the Commissioner. The learned Counsel for the Company further stated that at the time of granting stay order, the same Member (Judicial) in Paragraph-4 of the said order has recorded that "the difference between the two sets of records has been explained by the appellant". (See Page 278 of the Supplementary Paper Book). It was also found by the appellate authority, at the interlocutory stage of the order that the order of the Commissioner is prima facie erroneous and the Company has made out a prima facie case as a result of which an unconditional stay order was granted. The learned Counsel, of course, submitted that even though the same is an interlocutory order but in the said order Member (Judicial) found that the explanation offered by the Company makes out a strong prima facie case. But the same explanation which has been offered has not at all been considered at the final stage when the appeal was heard.
17. Learned Counsel drew the attention of the Court to the specific explanations offered in respect of three items in the written notes filed on behalf of the Company. But the learned Counsel for the Company submitted that those explanations have not been considered at all.
18. This Court finds that there is some substance in the aforesaid contention of the learned Counsel for the Company. In fact the following explanation has been offered in so far as MEG is concerned.
MEG consumption as per photocopy
supplied by the Department for
the period from October, 1991 to
October 1995 (both duty paid and
non-duty paid) 21,278.430 M.T.
Consumption as per show cause
notice for both duty paid and
non duty paid 21,186.911 M.T.
_______________
Difference 91.519 M.T.
Add : Quantity of last date MEG
consumption adjusted in RG 23
Part-1 on the basis of Physical
stock and during the strike
period, not properly recorded
in Log Book 770.677 M.T.
_______________
Difference as per show cause
notice 862.196 M.T.
Difference 858.938 M.T.
_______________
3.258 M.T.
19. In so far as PP Chips are concerned the following explanation has been offered.
(a) Total input issued to process during May 94 to January 95 (as per Annexure II to the Reply to the show cause notice) - 3744.0228 M.T.
(b) Add : Opening Stock of Chips on floor and in process 32.9250 M.T. ______________ Total: 3776.9478 M.T. Less: Closing Stock of Chips on floor and in process 116.9840 M.T. ______________ Net Consumption 3659.9638 M.T. ______________ Finished Product (Annexure II to the reply to show cause notice):
Production of POY (RG-I) 3112.9352 M.T.
Production of POY Waste (RG-I) 131.4985 M.T.
D.TY (RG-I) 304.2661 M.T.
D.TY Waste (RG-I) 1.6381 M.T.
D.Tex (RG-I) 250.1816 M.T.
D. Tex (Waste) (RG-1) 1.5393 M.T.
______________
Grand Total 3802.0588 M.T.
Less: Production of D. Ty and D.
Tex out of captive production
of POY (RG-I) 144.7872 M.T.
______________
Total Production 3657.2716 M.T.
The difference between input and
output (3659.9638 - 3657.2716)
thus worked out to. The difference
of 2.6922 MT (0.073%) was due to
invisible loss such as moisture,
spillage in any form etc. 2.6922 M.T.
______________
Norm - 1 Kg. of the input gives
1 Kg. of the output.
20. In so far as PTA is concerned the following explanation has been offered.
Total polymer produced product from 1-10-1994 to 30-9-1995 17147.025 M.T. Total PTA/TPA charged as per photocopies of PTA/TPA/TA Log Book (seized) 14771.644 M.T. (including PTA/TPA in missing pages taken Shift Engineers Log Books as stated above). Total PTA/TPA consumed as per RT-5 Returns (after consideration of increase/decrease in floor stock) 14776.709 M.T. Input/output Ratio of PTA/ POLYMER-(14776.709/17147.025) 861.765 M.T. Input/Output Ratio of PTA/Polymer as per Collaboration agreement. 0.865 M.T. The aforesaid analysis shows that all the PTA shown in RT-5 Returns was used during the material period and no part of the PTA was removed as alleged.
21. The learned Counsel for the Company relied on the judgment of the Supreme Court in the case of Union of India v. Indian Aluminum Co. Ltd. and contends that exact mathematical equation cannot be achieved between the quantity of manufacture of the final products and consumption of raw material for the said products. In paragraph-14 of Union of India (supra) the learned Judges came to the following conclusion;
...In the course of manufacture, a certain quantity of raw material may be lost because of the very nature of the process of manufacture or some small quantity of raw material may form part of wastage or ashes. This does not mean that the entire raw material was not used in the manufacture of finished exercisable products. An exact mathematical equation between the quantity of raw material purchased and the raw material found in the finished product is not possible, and should not be looked for.
22. In coming to the aforesaid conclusion, the learned Judges relied on another judgment of the Apex Court in the case of Multimetals Ltd. v. Assistant Collector, Central Excise and several other judgments.
23. The learned Counsel very strenuously urged that in view of such factual explanation which has been offered by the Company, difference in stock when it is compared with the volume of production, no case of clandestine removal can be made out against the Company. But this explanation has not been considered by the Member (Judicial). The learned Counsel further submitted that in so far as the opinion of the third Member is concerned, reasonings therein are even more sketchy and the third Member has also not considered the explanation offered. The entire finding of the third Member starts at page-327 of the Supplementary Paper Book and in the said finding there is no mention of specific explanation given by the Company. The third Member merely recorded the finding of the Member (Judicial).
24. In so far as the question of clandestine removal is concerned, the decided cases on the point support the case of the company. Reference may be made to the decision in the case of Oudh Sugar Mills Ltd. v. Union of India reported in 1978 (2) E.L.T (J172) (S.C). It was a Constitutional Bench of the Supreme Court. In that case also there was a charge of clandestine removal and those allegations were based only on calculation of raw material fed into the process or on working of the machinery as noticed during test inspection. The Apex Court held that since there is no tangible evidence on record finding of non-accounting only on assumptions is vitiated by errors of law. Justice Modhol-kar speaking for the unanimous Constitution Bench of the Supreme Court held that the argument explaining the shortage was not considered by the Collector or the Central Board of Revenue or the Central Government and the Apex Court in that circumstances held that the finding that 11,606 maunds of sugar were not accounted for by the appellant has been arrived at without any tangible evidence and is based only on inferences involving unwarranted assumptions. Such finding was held to be vitiated by an error of law. In the instant case also we find that the explanation given on behalf of the Company was not considered by the appropriate fact finding quasi judicial authority as pointed out above. So without a proper consideration of those explanations, the conclusions arrived at cannot be sustained. On this aspect reference can be made to the judgment in the case of Durga Trading Company v. Commissioner of C.Ex., Lucknow reported in 2002 (148) E.L.T. 967 on the question of clandestine removal. In that case reconciliation between sales and purchase bill was not arrived at. The learned Judges held that on that basis no inference of clandestine removal could be drawn legally. Nor any conclusion can be drawn that the goods were cleared after manufacture without payment of duty. The learned Judges held that a charge of clandestine removal has to be based on concrete and tangible evidence and not on inferences involving unwarranted assumptions and in coming to the said finding, the Tribunal relied on the ratio in the case of Oudh Sugar Mills Ltd. (supra). This Court has been informed that the decision of the Tribunal in Durga Trading Company has been affirmed on appeal by the Supreme Court. The judgment of the Supreme Court has been (S.C.). Reference in this connection may be made to another judgment of the CEGAT, West Zonal Bench, Mumbai in Orkay Polyester v. Director, Anti-Evasion, C.E., New Delhi In that case also there was an allegation of clandestine removal of raw material. Against the said allegation the Company gave an explanation and there was a finding that the short received raw material being less than 0.18% of total quantity could not be an exaggerated claim and in the background of these facts the charge that short received raw material was used in manufacture of clandestinely removed final goods was not upheld. Against that order initially appeal was admitted by the Supreme Court and the Supreme Court initially granted a stay order. But ultimately the same was dismissed by the Supreme Court and the said order of dismissal was .
25. In the instant case, similarly no evidence has been adduced by the Revenue to prove its case on clandestine removal except relying on the alleged difference in the stock based on a comparison between the statutory records and the privately maintained records. This aspect of the matter was not considered by the tribunal at all.
26. On the question of penalty imposed under Section 11AC of Central Excise Act, 1944 the learned Counsel for the Company submitted that the said penally could not be imposed in the facts of the case. The said penalty was imposed in the case of PP Chips. The learned Counsel for the Company stated that the said provision, namely, Section 11 AC of the said Act came into existence with effect from 28-9-1996. But the material period for which penalty was sought to be levied was between May, 1994 and January, 1995. The learned Counsel for the petitioner relied on the judgment of the Supreme Court in the case of Commissioner of Central Excise, Coimbatore v. Elgi Equipments Ltd. reported in 2001 (128) E.L.T. 52 (S.C.). The learned Counsel relied on the said judgment for the proposition that the Supreme Court held that the said provisions, namely, Section 11AC of Central Excise Act, 1944 is prospective in operation and any illegality committed prior to insertion of Section 11AC cannot be the subject matter of penalty under the said provision. This Court finds that the ratio Is squarely applicable to the facts of the case.
27. In so far as other penalty provision is concerned, namely, imposition of penalty under Rule 173Q, learned Counsel for the Company submitted that neither in the show cause notice nor the order of the Commissioner indicated under which clause of Rule 173Q the penalty has been imposed. The learned Counsel submitted that whenever penalty is imposed, the particulars of the provision which have been violated must be furnished in the show cause notice and without furnishing those particulars penalty cannot be imposed. Learned Counsel in support of the said contention relied on the judgment in the case of Amrit Foods v. Commissioner of Central Excise, U.P. reported in 2005 (190) E.L.T 433 (S.C.).
28. From a perusal of the said judgment it appears that the Tribunal has set aside the order of the Commissioner on the ground that neither the show cause notice nor the order of the Commissioner specified which particular clause of Rule 173Q had been allegedly contravened by the appellant. The Apex Court held that the finding of the Tribunal is correct. The Apex Court also found that Rule 173Q contains six clauses and the contents of which are not same. Therefore, it was necessary for the assessee to be put on notice as to the exact nature of contravention for which the assessee was liable under the provisions of Rule 173Q. Since this has not been done, the finding of the Tribunal cannot be faulted. Unfortunately in the instant case the imposition of penalty appears to have been vitiated on that ground. But despite non-furnishing of the particulars of contravention of the exact clause in 173Q, the penalty orders have been sustained by the Tribunal. The said finding of the penalty is clearly in violation of the settled law as has been reiterated by the Supreme Court in Amrit Foods case.
29. In this case the learned Counsel for the Revenue has not been able to controvert the submissions made on behalf of the Company either on the question of penalty or on the question of non consideration by the Tribunal of the explanation given by the Company. The learned Counsel did not urge that the majority decision of the Tribunal has come to its findings after considering the explanation furnished by the company. The only argument which was made by the learned Counsel for the Revenue was that in the instance case the Court is acting in exercise of its reference jurisdiction and in exercise of its reference jurisdiction, the Court cannot set aside the order passed by the Tribunal. In support of such contention the learned Counsel relied on the provisions of Sections 35H and 35K of the Central Excise Act, 1944. It may be noted here that learned Counsel for the Revenue did not file any written note of argument even though the same was filed on behalf of the Company.
30. In explaining the nature of Reference Jurisdiction of the High Court, the learned Counsel for the Company referred to the decision of the Supreme Court in the case of Omar Salay Mohamed Sait v. Commissioner of Income Tax, Madras . By referring to the said judgment of the Hon'ble Supreme Court, the learned Counsel urged that in a case where a fact finding Tribunal arrives at its own conclusions of fact after due consideration of the evidence before it the High Court may not interfere but where the Tribunal does not consider the materials which are furnished before it and come to a conclusion without consideration of the relevant materials, even though on questions of fact, in such a case its finding can be set aside by the High Court. These observations have been made by the learned Judges at Page-170 of the Report. The learned Counsel also relied on the judgment of the Supreme Court in the case of Achutananda Baidya v. Prafullya Kumar Gayen and Ors. and reliance was also placed on paragraph-9 where the learned Judges held that if the appellate authority does not consider the materials on record having a bearing on its finding, such finding of fact arrived, without consideration of relevant materials on record, cannot be sustained in law. Though the aforesaid observations were made in the context of the power of the High Court under Article 227 of the Constitution, on principle the same guidelines are to be followed by all fact finding authority. Reliance was also placed on the decision of the Supreme Court in the case of Commissioner of Income Tax, Punjab v. Indian Woolen Textile' Mills . In that case the learned Judges of the Supreme Court came to a conclusion that the if the appellate Tribunal does not consider the evidence covering all the essential matters and bases its finding upon some evidence only, ignoring other essential matters that would amount to a misdirection in law and the finding would give rise to a question liable to be referred to the court. Supreme Court held that even in reference jurisdiction if the Tribunal has misdirected itself in arriving at its finding, the High Court has the power to direct the Tribunal to state a case. Reliance was also placed on a judgment of the Gujarat High Court in the case of Anant Mills Ltd. v. Commissioner of Income Tax . The said decision was also rendered by the High Court in its reference jurisdiction under Section 256 of the Income Tax Act, 1961. Learned Judges of the Gujarat High Court found that when the Tribunal ignores material evidence on record and an inferential finding is reached, based on one fact alone and in disregard of voluminous documentary evidence to the contrary, it can be said that the finding reached by the Tribunal is patently unreasonable. In view of such finding reached by the Tribunal, the High Court can be of the opinion that the Tribunal was not justified in reaching the finding it had reached and as such, the Court can answer the question in favour of the assessee. This Court finds that the aforesaid principles are applicable to the exercise of Reference Jurisdiction by the High Court under Section 35K of the Act.
31. Following the aforesaid principles, this Court is unable to uphold the finding, by the majority decision, of the Tribunal and this Court is of the opinion that the Tribunal misdirected itself in law by not considering the explanation given by the petitioner-Company about the alleged shortage of the raw materials between the two sets of records. Without considering the explanation furnished by the Company, the Tribunal's finding cannot be sustained in the eye of law. As such, this Court answers the first question in the affirmative and in favour of the Company and the second question in the negative and also in favour of the Company. In view of this Court's answer on these questions, the other two questions need not be answered.
The Court, therefore, remands the case to the Tribunal for reconsideration after detailed consideration of the explanation given by the petitioner-Company and such consideration should be made in the light of the observations made in this Judgment. Since the matter is pending for long time, this Court directs that the entire exercise should be completed as early as possible, preferably within a period of six months from the date this Judgment is produced before the Tribunal.
All the three reference cases are answered and disposed of accordingly.
No order as to cost.