H.S. Nataraj and Others vs The Commissioner of Central Excise

Jayant M. Patel, J.—1. As in all appeals, common questions are raised for consideration, they are considered simultaneously.

All appeals are directed against the order dated 14.12.2011 passed by the Customs Excise and Services Tax Appellate Tribunal (hereinafter referred to as Tribunal'') in E/69, 70, 559, 825 & 826/2008 whereby, the Tribunal for the reasons recorded in the order has issued various directions in respect of respective appeals.

We have heard Mr. Seshachala, learned Sr. Counsel appearing with Smt. Vani H. and Mr. B. Pramod, Standing Counsel for respondent-Revenue.

The factual matrix of the case appears to be that, on June 20, 2005 there was search and seizure in the premises of the appellant, the dealer and some of retailers. On 17.12.2005, the Asst. Commissioner of Central Excise issued show-cause notice proposing to confiscate Gutkha seized from the retailer and demanded duty on the seized goods. On 19.12.2006, the appellant submitted reply to the show-cause notice.

On 31.1.2007, another show-cause notice came to be issued by the respondent proposing to demand central excise duty of Rs. 4,29,95,446/- for the period from 1.4.2002 to 19.6.2005. On 2.3.2007, the respondent issued corrigendum to the earlier notice dated 17.12.2005.

The respondent considered the matter and on 28.3.2007, the order in original No. 5/07 was passed confirming the duty amount of Rs. 2,85,634/- and imposing penalty of Rs. 50,000/- and redemption fine of Rs. 50,000/-.upon the appellant. In the meantime, the appellant also submitted reply to the second show-cause notice on 3.5.2007. The appellant also preferred appeal before the Tribunal against order dated 28.3.2007 vide No. 5/07. On 7.12.2007, the Tribunal vide final order No. 389/07 remanded the matter to the Original Authority on the ground of observance of the principles of natural justice.

On 28.9.2007,the respondent passed an order in original No. 14/07 in furtherance to the show-cause notice dated 31.1.2007 (second show-cause notice) and confirmed the duty demand of Rs. 4,29,95,446/- and imposed penalties upon the appellant of Rs. 4,29,95,446/-. The appellant filed appeal against the aforesaid order dated 28.9.2007 before the Tribunal.

On 28.4.2008, the respondent passed a denovo order No. 11/08 dated 28.4.2008 whereby the demand of the duty of Rs. 2,85,634/- and the tax penalties, redemption fine were confirmed. Against the said order dated 28.4.2008, the appellant preferred appeal before the Tribunal.

The Tribunal ultimately vide order dated 1.12.2011 disposed of all the appeals and issued following operative directions which read as under:

"(a) Appeal No. E/69/08 by TAG is disposed of as follow:--

(i) Demand of Rs. 9,66,224/- relating to the period 2002-03, demand of Rs. 1,35,28,624/- relating to April 2003 to July 2004 and demand of duty relating to April & May 2005 amounting to Rs. 50,05,439/- are upheld. Corresponding penalties of equal amounts under Section 11AC are also upheld.

(ii) Demand of duty for the period April 2004 to March 2005 shall be restricted to duty payable on a differential quantity of pouches determined based on production capacity and accordingly, the duty liability shall be reworked and the corresponding penalty of equal amount reworked under Section 11AC upheld.

(iii) Interest demands on the amounts at (i) & (ii) are upheld.

(iv) Penalty of Rs. 42 lakhs imposed under Rule 25 of the Central Excise Rules 2002, on TAG is set aside.

(b) Appeal No. E/559/08 is disposed of by upholding the confiscation of the goods. The redemption fine of 50,000 is upheld. Penalty of Rs. 50,000/- imposed is also upheld. However, the demand of Rs. 2,85,634/- is set aside for the reasons recorded earlier.

(c) Appeal No. E/70/2008 filed by Shri H.S. Nataraj, M.D. of TAG is rejected and the penalty of Rs. 5 lakhs imposed on him is upheld.

(d) E/826/08 by M/s. Embee Agencies is rejected and the penalty of Rs. 20,000/-imposed on them is upheld.

(e) E/825/08 by M/s. Whab Stores is rejected and the penalty of Rs. 10,000/- imposed on them is upheld."

Under the circumstances, the present appeals before this Court.

We may record that, the appeals came to be admitted on 16.10.2012 upon following substantial questions of law raised by the appellant:

"a) Whether the Tribunal was within its jurisdiction to confirm the duty demand beyond the scope of the show cause notice, based on various methods, which were not proposed in the show cause notice as the basis for quantification of duty demanded.

b) Whether the Tribunal was right in upholding the penalty imposed on the appellant when the duty demand itself was not legally sustainable.

c) Any other question of law arising out of the order passed by the respective authorities may be formulated for consideration."

We have heard Mr. M.V. Seshachala, learned Senior Counsel appearing for the appellant and Mr. B. Pramod, learned Counsel for the respondent.

When we heard the learned counsel appearing for both the side, it appears that it is undisputed position that, Section 3-A was on the statute book in the Central Excise Act, 1944 (hereinafter referred to as ''the Act'') by insertion by Act of 81/1956 which came into force on 22.12.1956. Thereafter, on 26.12.1960, said provision of Section 3-A was omitted. Again it was inserted on 14.5.1997 but, again omitted on 11.5.2001. The said Section 3-A again came to be inserted on 10.5.2008 and thereafter has continued. In any case, it is undisputed position that, during subject period, the said provision of Section 3A was not on the statute book during the subject period of 2002-03 to 2004-05. or upto not even for 2005-06 and came to be inserted only on 10.5.2008.

It is by now well settled that all taxing statutes are to be strictly interpreted. Further in normal circumstance, when there is conscious omission on the part of the Parliament for charging the excise duty based on the production capacity by virtue of Section 3-A, it will have the repercussions for such a course to be made available to the assessing authority. Further, even as per Section 3-A, the goods are required to be notified for the purpose of charging excise duty on the basis of production capacity. As such, it is a pure question of law as to whether the recourse under Section 3-A under these circumstances, is available to the Assessing Authority for levy of Excise duty on the basis of production capacity or not. However, it appears from the order of the Tribunal that, neither said contention was raised nor considered by the Tribunal in the impugned order. Had it been a mixed question of law and fact, the matter may stand on a different footing and different considerations but, when it is a pure question of law for available recourse under Section 3-A, we find that such a contention is available to the party aggrieved by the order of the Tribunal. Further, as observed by us hereinabove, even if Section 3-A is to apply, then also, a further scrutiny may be required to be undertaken as to whether, for the goods in question, the notification was issued or not. It is only after the two aspects of applicability of Section 3-A and the availability of the notification for production of Gutka, the matter can be considered for finalization of excise duty by the Revenue. As, neither there is reference to such contention nor there is discussion by the Tribunal on the aforesaid aspects which are vital aspects for charging of excise duty, we find that it would be just and proper to remand the matter to the Tribunal for appropriate consideration in accordance with law.

Apart from the above aspects, the learned counsel appearing for the appellant has raised two contentions that the figure mentioned in the second show cause notice of demand of duty is not backed by the reasons supplied in support of said show-cause notice since the said second show-cause notice dated 31.1.2007 vide para 7(a) itself specified in detail in the statement of facts enclosed to the notice whereas, learned counsel appearing for the Revenue submitted that the said contention was also not raised before the Tribunal nor any specific discussion is found from the order of the Tribunal. He submitted that if the said contention is not raised before the Tribunal, appellant-assessee cannot be permitted to raise the said contention in the present appeal which is limited to substantial questions of law.

As we notice, it is true that such a contention specifically to that extent is unavailable in the order of the Tribunal. However, the contentions so raised is not a mere question of fact but, is a mixed question of law and facts, if the ultimate amount quantified in the show-cause notice goes beyond the reasons recorded or reasons appended to the show-cause notice, and thereafter at the time of confirmation of the demand, the said aspect is not considered. It may fall in the arena of observance of not only the principles of natural justice but, may also fall in the arena of self-contradictory stand resulting into ultimate no sufficient opportunity to meet with the same. When the question arise for observation of the principles of natural justice, it would be a question of law though may be it is based on certain factual premise.

We would have considered the matter strictly as to whether such a contention should be examined by this Court, when the contention was not so raised before the Tribunal. However, considering the peculiar circumstances that, as referred to herein above, on the aspects of availability of Section 3-A and on the aspects as to whether goods were so notified for the purpose of charging excise duty, when we have found it proper to remand the matter to the Tribunal, we find that it would be just and proper to allow the party to raise the contention even on the aspects of the show-cause notice as referred to hereinabove before the Tribunal and the Tribunal shall examine the same in accordance with law.

In view of the aforesaid observation and discussion, we find that, on the aforesaid two limited aspects, the matter deserves to be remanded to the Tribunal.

Hence, the impugned order passed by the Tribunal is set aside with a further direction that all Appeal Nos. 69, 70, 559, 825 and 826/08 shall stand restored to the Tribunal for its consideration in accordance with law and in the light of the observations made by this Court in the present Judgment.

It is observed that before the Tribunal, both the sides shall be at the liberty to raise all contentions as may be available in law and the Tribunal, after hearing both sides, shall pass a fresh order as early as possible preferably within a period of six months from the receipt of certified copy of the order of this Court.

It is clarified that the Tribunal shall examine both the aspects which are referred to by this Court in the Judgment but, the Tribunal is at liberty to take independent view of the matter without being influenced by any observations made by this Court in the present Judgment on the aforesaid two aspects.

The appeals are allowed to the aforesaid extent.

Considering the facts and circumstances, no order as to costs.

In so far as CEA 32/2012, in view of the final order passed by this Court in CEA 14/12 and allied matters when the order of the Tribunal is quashed, the question of finality will have to be reconsidered by the Tribunal on the basis of quantification of the duty and hence, we find the present appeal would not survive and it stands disposed of.

Amount deposited pending the present appeal shall be subject to final order which may be passed by the Tribunal after remand.