Hiran Tobacco Factory vs Union of India

We have heard Shri V.K. Upadhyay, learned Senior Counsel assisted by Shri Nishant Mishra for the petitioners. Shri Vinod Kant Srivastava has accepted notice on behalf of the respondents. The petitioner No. 1 is a partnership firm engaged in manufacturing of ''Branded Chewing Tobacco''. The petitioner No. 2 is the partner of petitioner No. 1 firm. Branded Chewing Tobacco is classified under Chapter 2403.9910 of the Central Excise Tariff Act, 1985.

In this writ petition the petitioner is aggrieved by the demand-cum-show cause notice issued by the office of the Commissioner, Customs, Central Excise and Service Tax, Kanpur proposing to impose Central Excise Duty, penalty and interest. The notice also proposed as to why the penalty be not imposed under Rule 26 of the Central Excise Rules, 2002 for the reasons discussed in the notice. The operative portion of the notice requires the petitioner to produce all the relevant evidence upon which they intend to rely in their support and to state in their written explanation whether they wish to be heard in person before case is adjudicated.

Learned counsel appearing for the Central Excise Department submits that the writ petition is not ordinarily maintainable against demand-cum-show cause notice. The petitioner will have sufficient opportunities, to establish that he is not liable to pay excise duty and penalty as demanded from him. It is submitted that the petitioner did not cooperate in the enquiry with the Adjudicating Officer and thus he should not be allowed to be heard on the evidence and issues, which he could have raised before the adjudicating authority.

Shri V.K. Upadhyay, learned Senior Counsel submits that the show cause notice suffers from gross error of facts, which constitute jurisdictional error and of the provisions of law. He is as whole [saler] entitled to avail benefit as a whole [saler] selling branded tobacco in dibbis (boxes) of the quantities, which are less than 10 gram, and for which there is an exemption to give the maximum retail price (MRP) on the packing. He has relied on Jayanti Food Processing (P) Ltd. v. Commissioner of C. Ex., Rajasthan, 2007 (215) E.L.T. 327 (S.C.). Shri V.K. Upadhyay has also relied on the judgment of Supreme Court in Siemens Ltd. Vs. State of Maharashtra and Others, and Union of India (UOI) Vs. Hindalco Industries, and Jagran Prakashan Limited Vs. The Deputy Commissioner of Income Tax (Tds), in a matter arising from income tax in support of his submission.

Shri V.K. Upadhyay submits that exemption given under Rule 26 of the LMPC Rules (earlier Rule 34 of SWMPC Rules) to the manufacturers for sale of goods in net weight of less than ten grams or 10 milliliter are exempted from declaring maximum retail price. The petitioner is entitled to such exemption as it is whole [saler] and in the circumstances in view of the law laid down in Jayanti Food Processing (P.) Ltd. (supra) the petitioner was not required to disclose MRP, which is the foundation of the demand-cum-show cause notice. He relies on paragraph 5 of the judgment, which is quoted as below:-

When we read these Rules along with provisions of Section 4A of the Act, it would be clear that where there is a general exemption like Section 34 under the SWM (PC) Rules such goods and/or packages of such goods shall not be covered by Section 4A(1) and (2) of the Act. However, all such packages which are covered under Chapter II, more particularly under Rule 6(1)(f), Rules 15, 16 and 17, would be governed u/s 4A as such packages are required to declare the retail sale price on the packages. The packages covered by Rule 29 would be outside the purview of the retail sales as under that Rule retail prices are not required to be mentioned on the package. However, again those packages which enjoy the exemption under Rule 34 shall also be outside the scope of Section 4A of the Act as the Rules do not apply to the said packages.

Shri V.K. Upadhyay submits that there are no disputed facts in the present case. The petitioner had cooperated in the enquiry and that with a clear case of exemption the notice is premeditated exercise to impose excise duty.

In order to appreciate the reasons for which notice has been given, it will be useful to quote paragraphs 19 to 31 of the impugned notice:-

It also appears that the party have intimated to the department on 24-8-2006 regarding the clearance of their goods u/s 4 and claimed that their packing is below 10 gms to be specific 7 grms & 6 grms, therefore they are exempted from the provisions of Standard Weight and Measurement Act but party have submitted nothing as an evidence showing that the goods cleared by them bear the weight on individual packets. However, the party, vide their letter dated 14-6-2012 submitted the detailed composition of wholesale package of different brands of tobacco being manufactured by them, which shows the content of per package/dibbi brand wise, quantity in weight and number per bag, but they have not mentioned the MRP of the dibbi in the said letter. When they were enquired for this they have submitted that they did not maintain information in this regard, however, they have stated that they mention MRP in the retain packet in the interest of the gullible consumer.

And whereas from the plain reading of Rule 26 of LMPC Rules (earlier Rule 34 of SWMPC Rules), it is clear that only those manufacturers are exempted to declare MRP in the retail packets, when the net weight of the goods contained in the packets is less than 10 grams or ten millimeter, if sold by weight. And whereas "if sold by weight" appears to mean that if the goods are sold first to wholesale trader and thereafter at the retail end to the ultimate retail purchaser, then there must be a mention of weight of content in the packets so that purchaser should know actual quantity of content in packet. But in the instant case, perusal of invoices, issued by the party to the wholesale traders reflects that they do not show any weight of goods on them, and also the samples of packets/packing material/packaging material tendered by the party during the visit of officers on 21-9-2011 do not show any mention of weight of per dibbi or total dibbies in small packets and its total weight, this itself made the situation clear that the party as stated above, never mentioned the weight in their packets since 24-8-2006.

And whereas it appears that to avail the exemption, as provided in any rule/notification, the mandatory provisions as laid down in the rules/notifications, are to be strictly followed. In the instant case, the party has claimed exemption as per provisions of Rule 26 of LMPC Rules, stating that their goods are of less than 10 grams. weight and they are selling, such goods, only, which are less than 10 grams. in weight as is claimed by them time to time. But in view of resonance of provisions of Rule ibid they were required to print the weight of finished goods on the each packing/packet of such goods, to be said, or at least goods content less than 10 grams. in the packets to be sold. In absence of mentioning the weight of goods contained in every packet, it cannot be known at any time that the contents of goods in a particular packet are more than exemption limit or less than exemption limit.

And whereas it also appears that the party has mentioned weight of total clearance, during the month, in their ER-1''s only submitted to the department on monthly basis. This appears to be informatory only as it is not the department who should know the weight of content but it is the only ultimate consumer, to whom the goods are sold, and who is supposed to know the weight or content per packet, as per provisions of Rule 26 of LMPC Rules ibid.

And whereas it also appears that the mentioning of MRP on the small packages by the party itself and not mentioning the weight on the packets clarify their intentions to sale their goods in the market on the basis of MRP only and not on the basis of weight.

Any whereas it also appears that the party has claimed exemption as per provisions of Rule 26 of LMPC Rules ibid, as such the onus of proof of fulfillment of conditions, subject to which on exemption, by way of provision of said rule is admissible lies upon them only and where condition precedent is not fulfilled before claiming any exemption, such benefit appears not to be admissible to them.

And whereas it also appears that an exemption provision either through an act or a rule or through a notification, is like an exception and on normal principles of interpretation of its provisions, it appears to be construed strictly because of legislative intention, intended to augment state revenue. And furthermore "exemption, being in the nature of exception, appears to be construed strictly at the stage of determination, only, whether partly falls within its terms or not, and in case of doubt or ambiguity, benefit of such doubt or ambiguity in the said exemption appears to go to the State.

And whereas it appears that on the basis of discussion above, the party, were required to clear their goods u/s 4A of the Act ibid, as they have printed MRP only on the packets sold/to be sold, which itself clarify that they were having their continuous intention for selling their goods on the maximum retail price basis only. Also it appears that the party failed to provide only evidence in support of their contention that they sold/sell the goods by weight and that their goods are covered by the notification issued in accordance to LM Act/LMPC Rules which was obligatory on them, as they claimed to sell their goods on the basis of weight only. Hence it clearly appears that in absence of weight of contents in packet, the duty appears to be payable on their goods on the basis of MRP (which is given in each packet) as such provisions of section 4A are clearly applicable on the clearance of their goods.

And whereas, it also appears that during investigation/enquiry proceedings the party did not co-operate and also not submitted any record as required. They only submitted that they are exempted from paying duty u/s 4A as per provisions of SWMPC Rules, but this submission does not amount to discharge of the onus of proof at the party''s end. It is crystal clear that the party has manufactured and sold the goods in question, therefore, it was only the party who were having proper knowledge as to how and in what manner the goods were packed for sale. During the enquiry proceedings, despite the fact that they were given opportunity to produce the evidence in their support, they did not lead any evidence to indicate that they have mentioned weight in the packets/packages, sold/intended for sale, except the letter dated 14-6-2012 where they have given the weight of content in packets but in that too they have not mentioned MRP of the packets and if, for instance their letter dated 14-6-2012 may taken as evidence, but itself, the said letter appears to be not proper document, but which they are able for exemption as per provisions of SWMP Rules, as the poof of putting weight on individual packets was not put forth by the party. It appears obligatory for them to print the weight of goods contained in a packet, so that they would be qualified for the assessment u/s 4 and not u/s 4A, and therefore in absence of weight of content in packets, there appears no option but to understand that the party has failed to discharge onus regarding mentioning of weight of goods in every individual packet. In view of above, it appears that the party has failed to discharge their onus and hence the goods are liable to be assessed u/s 4A in place of Section 4 as done by the party.

And whereas it also appears that the party has claimed exemption as per provisions of SWMPC Rules wherein it is clearly mentioned that the goods should be sold by weight (in instant case). In the circumstances, it appears to be party only who has to discharge onus of proof that their goods are being sold by weight. However, it has been found that nowhere i.e. either in packets of goods or in packages containing such packets of goods, weight is mentioned. It has been observed that only MRP of goods is mentioned and also the partner of party i.e. Shri Himanshu Shukla has clearly stated in his statement dated 21-9-2011 that they do not mention the weight on packets/packages. It is also observed that it is the party only, specifically, to their products being manufactured/cleared, and it is they only who have to decide the produced, packed and cleared, and it is they only who have to decide the content on the packets mentioned on it and all other related things with respect to sale etc. of the goods. It is, therefore, clear that the party was well aware that they are not following the principles of SWMPC Rules but to mislead the department and that to befool the ultimate consumer, they have intentionally and knowingly not mentioned the weight of contents on the packets/packages, and accordingly, it appears that the exemption as per SWMPC Rules appears not available to them.

And whereas from the foregoing facts it is evident that M/s. Hiran Tobacco Factory have indulged in malpractices of not following the provisions contained in Acts/Rules ibid with an intent to evade the payment of duty leviable thereon and deprived the Government of its legitimate revenue and thus have contravened the provisions of Central Excise Act 1944 and rules framed thereunder as under:-

(a) Section 4A of Act ibid read with provisions of SWMPC Rules/LMPC Rules inasmuch as they have not assessed their goods on the value, with reference to retail sale price;

(b) Rule 6 read with Rule 8 of Central Excise Rules, 2002, inasmuch as they have not property assessed the duty payable on their goods cleared during the period in question and not paid the due duty accordingly.

And whereas, it also appears that the party vide their letter dated 24-8-2006 have intimated that they will make clearance u/s 4 of the Act ibid claiming therewith that their packing is below 10 grms. and therefore they are exempted from Standard Weight and Measurement Act ibid but, they failed to provide any evidence along with their intimation regarding the weight of their product(s), with the department; and it also appears that weight of produce is not mentioned in the samples (packing materials/packaging materials) tendered to the party on 21-9-2011 during statement dated 21-9-2011 and it also appears that invoices issued by the party, for clearance of goods do not show weight of produce cleared; and it also appears that the party failed to submit the records showing evidences in their favour for the clearances of goods by weight, whenever required by the department; it also appears that the party have claimed exemption in view of provisions of SWMPC Rules (now LMPC Rules) as per their analysis, while the provisions of SWM Act/Rules clearly show that the goods are exempted from the provision, if sold by weight only, which apparently clarify that the party has not followed the resonance of provisions contained in the Rules, ibid. And furthermore, it also appears that the party vide their letter 14-6-2012 have tendered samples of their produces which show both details i.e. the details of weight and MRP of the packet, printed on it, this itself clarifies that the party were in the habit of not mentioning the weight of product in their packets earlier and only MRP was being printed on their product''s packets and after the query raised by the department, they have rectified the mistake being done earlier by them, accordingly, the samples tendered by the party vide their letter dated 14-6-2012 are being considered as an evidence in the instant case.

On the basis of above, it is crystal clear that the party have willingly, suppressed all the facts and misinterpreted the provisions of exemption in their favour, to pay less duty on the clearance of their products. The party who appears to be well versed that the provisions of Section 4A of Act ibid are directly related to the provision of S.W.M.P.C. Rules/L.M.P.C. Rules made thereunder, as such the party have willfully suppressed the material facts of non-mentioning the weight on every packet which they were required to print as per the provisions of S.W.M.P.C. Rules/L.M.P.C. Rules, in case they want to seek exemption from printing M.R.P. and accordingly they have paid less amount of duty hence the provisions of Section 11A, as amended, for extended period, are clearly invokable in this case and accordingly the provisions of Section 11AC are also invokable.

Prima facie we do not find that the adjudicating authority has either given notice with premeditated mind or has recorded any findings, which may prejudice the petitioner at this stage.

The petitioner was given several opportunities to appear and give reply to the notice and to lead evidence in support of his contentions. The Adjudicating Authority has observed that the petitioner failed to reply to the notice and did not attend hearing on 22-9-2011 and on 28-2-2012 for the reasons such as ill health and lower backache. The petitioner was again required to appear along with documents, to which he only gave written replies, and chose to absent himself from the proceedings.

The Adjudicating Officer has observed in his demand-cum-show cause notice that to avail exemptions as provided in any rule/notification, the mandatory provisions as laid down in the rules/notifications is to be followed. In the present case the petitioner claims as per provisions of Rule 26 of LMPC Rules stating that their goods are of less than 10 grams weight. The provisions of Rule required it to print the weight of finished goods on each packing of such goods to be sold or at least print that the goods content are less than 10 grams in the packets to be sold. In the absence of mentioning the weight of goods contained in every packet, it could not be known at any time that the contents of goods in a particular packet are more or less than exemption limit.

The Adjudicating Authority has further observed that in ER-1 submitted to the department on monthly basis, the party had mentioned weight of total clearance. The information is only as if department is not entitled to know the weight or content but only the ultimate consumer to whom the goods are sold and who is supposed to know the weight or content of the packets as per provisions of Rule 26 of LMPC Rules.

We do not find that the notice has been given with any bias as the petitioner failed to cooperate in the enquiry and that the investigation/enquiry is still pending. The petitioner also did not give details for giving effective reply of the facts, which the petitioner treats as jurisdictional facts and on which the exemption is claimed. In the absence of any positive evidence of such facts, this Court cannot record findings. Further the Adjudicating Officer is also required to consider and record findings on the material on which he came to prima facie satisfaction that there was suppression of facts.

In our opinion the writ petition in the absence of the petitioner''s cooperation in leading evidence on which he was claiming exemption, is not maintainable. It will be open to the petitioner to lead evidence, in accordance with law, to establish the facts on which the exemption has been claimed, and all other facts on which the petitioner claims that the returns filed by him and excise duty paid should have been accepted. The writ petition is dismissed as premature.